Another Reason Why Some Home Loan Applicants Are Denied
But in 2023, there’s a “new” wrinkle. Insufficient income. This is not actually a new problem, obviously, as many aspire to buy a home but can’t afford it yet. According to CNBC, since certain types of home loan data started being tracked a few years back, the income problem is trending as a major reason why some loan applications get rejected.
Higher Rates And Higher Mortgage Payments
At press time, home loan interest rates were approaching the 8% range. Those higher rates make it difficult for some to justify buying a new home. But some don’t have the luxury of saying no and waiting. They have to hit the housing market regardless of the current rates.
As CNBC’s article published in October 2023 notes, “Higher rates add to monthly payments, which can mean it’s harder to qualify for a mortgage.”
In 2022, loan applications were rejected due to insufficient income “...more often than any other point since records began in 2018,” according to CNBC and a report from the Consumer Financial Protection Bureau.
How to Address the Income Problem
Some who worry about insufficient income take part-time jobs or side hustles to pad out their income. If a side hustle sounds good to you, remember that some types of income won’t qualify to be used to approve your home loan.
For example, many work side gigs as sellers on Etsy or eBay. But your lender is not likely to approve this income for the loan since it is not stable, reliable, or likely to continue in the same manner in a predictable way for loan approval purposes.
Time on the Job Counts
Ordinary part-time jobs are easier to sell to a lender as additional income, but you may be required to work that part-time job for a minimum amount of time before the lender can approve that income.
Expect to work that extra job for at least one year, possibly two, depending on circumstances and the lender’s standards.
Treat your part-time income like your full-time income for loan purposes in that the longer you have held the job, the more likely you are to have that income approved.
Moving from one part-time gig to another isn’t helpful for loan approval and it’s smart to try to put in as much time with a single part-time employer as you can in the year or more leading up to your loan application.
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