Government Lending Rules vs. Bank Policy?

Question

Hi, my wife and I will soon be looking to get preapproved to buy a home. We just recently moved to a new state and don't have two years employment history here. I am looking for information on employment verification and what the government has to say about it vs. what the bank has to say about it. I'm wanting to know how to decipher between what is government regulation and what is bank policy?

Currently, I am being told that because my wife is on a part time, temp status without two years history of being with her current employer that we will not be able to qualify for a loan and that this two year rule is a government rule, not a bank rule. I am employed full time but do not make enough to qualify on my own. Could someone point me in the right direction or give me a link to where these government rules are posted?

Chris Mason · Answer

Hi @Aaron Jones,

Here it is, directly from Fannie Mae (which for the record is not "the government" in the way you are thinking):

Examples of positive compensating factors that we like to see (1-3 will generally do it)...

• Employed in same line of work.
• Makes sense from a common sense perspective, like someone is returning to the workforce after being a stay at home parent for a while.
• Recently finished some training or education program that lines up with the new line of work.
• Low DTI.
• Great credit.
• Income trending upwards. 
• Solid reserves, meaning if that 25 hours/week becomes 15 hours/week for a few months you'd still be able to make the payment (believe it or not, this sometimes means that 5% down is stronger than 10% down because it means I can point to that 5% you are keeping in your pocket and say "reserves!").

This is one where you would want to be careful with your loan contingency. I wouldn't tell the listing agent this if she/he called me as the lender when vetting offers, but it'll come down to a human judgement call on the part of the underwriter, how well I package it and write a good cover letter, etc, and not be one of those "oh slam dunk no brainer of course it will be 100% fine" type things.

Chris Mason · Answer

@Aaron Jones,

The full scenario in this case has enough moving parts going on that a full credit package should be pre-flighted through underwriting.

Aaron J. · Answer

Hi Chris,

Thanks for your response. My wife is in the same industry but I have made an industry change. But my wife is the one who makes more but she is currently on a temp status which may or may not go permanent. So you would recommend starting with a broker? Doesn't that mean more fees ?

Chris Mason · Answer

Hi @Aaron Jones,

This isn't one where I would bother trying to broker it to BofA or Wells. Trapezoids can fit in square holes, but big box banks are only for squares in square holes. Fannie should go for this scenario, but give this a look for why it would be a waste of time to involve a big box bank.

For your work history: does the current job logically line up with your past work history? As in, if you were a widget maker before, now you're still in the widget industry or a closely related field/industry?

Aaron J. · Answer

Thank you for your responses. Basically, the facts are:

1. We have over 30-40% DP

2. Our credit scores are around 800

3. Reserves will be around $10k

4. I started my full time job 1 week ago. My wife started her temp job 2 months ago.

5. We both have two years work history but not at our current employers since we just moved to a new area.

6. Proposed DI is 30% if you include my wife's income.

Based on this information, what do you think a bank like Wells or BofA would say to us? I'm trying to save us the hassle of submitting docs and pulling credit, only to be declined. I want to make sure that we are well within lending guidelines and will be approved. Is this the kind of situation where you submit your app and hope for the best? Based on the fact that our credit is great, we have a strong down payment, and we will have reserves, shouldn't that offset the less than 12-24 months employment history?

JD Martin · Answer

Not sure what difference it makes. Unless you are going to file some kind of discrimination suit against the bank based on what you feel is arbitrary denial, banks do not have to grant everyone a loan just because they qualify - they just can't deny you a loan based on one of the protected classes (religion, race, etc). There's no rule that says you even have to have a job to get a loan - the only real requirement is reasonable expectation of repayment. That means you have to have either verifiable income or verifiable assets that can serve as the basis of repayment.

At the end of the day, the bank's main goal is to offload that mortgage to a third party, either Fannie/Freddie or some other party. They will work within whatever guidelines that party has set for acceptable loans for transfer, so to that end you could research the Freddie/Fannie guidelines. Or, if it were me, I would just find another bank.

Government Lending Rules vs. Bank Policy?

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