Some people have a base salary for their 40 hour work week but can double those hours, and that paycheck,  but clocking in overtime. Often the employer wants it this way, often the employee does- for whatever the reason. Many people begin to clock in overtime when they have a large expense coming up, like college or cars or vacations. Lots of people try to get as much OT as possible when they want to buy a house. We would call these folks hard working Americans! But are they rewarded for their overtime  when they apply for a mortgage? Not right way!

When qualifying for a mortgage, the lender takes your monthly housing expense (PITI) and divides by your gross monthly income. They compute your grossly monthly income by adding up all your income sources (base salary, over time, bonus, commissions, etc) and divide it by 12. However as I have written about before, they are leery about bonuses and commissions and dissect this income. But what you might not know, you hard-working Americans, is that OT is not always considered…….and you might not qualify for the mortgage anyway.  

Here are a few things you need to know about using your OT to qualify for a mortgage:

1.    FNMA and Freddie Mac do not use OT unless it has been received for at least 24 months. This shows that you have a history of receiving OT. It will also need to be verified that the OT will likely continue. If it is inconsistent or erratic, the lender might simply average it, lower the amount used or not allow it at all.

2.    If you have not been in your current job for 24 months, they will look at your previous job to see if you collected OT there. If you have not, and simply been on straight salary, you do not have a 24 month history of OT and you can’t use it.

3.    However, if you have been at your current  job and receiving OT for less than 24 months but more than 12 months, the lender will accept a letter from your employer that OT is typical and consistent income for you, and the likelihood of continuance is very good. There they might consider all or part of the OT income.

4.    If you have been in your current job for less than 12 months or been receiving OT for less than 12 months, they will not use it AT ALL.

5.    Lastly, if you are putting down less than a 20% down payment on your home, you will need to get PMI (Private Mortgage Insurance). Even if the lender allows the OT and will use it for you, it does not mean the PMI company will feel the same way and you are stopped right there.

Although you might be surprised that you work so hard and still can’t qualify for a mortgage with those extra hours, it is true. The rationale for the lenders is that you must have a proven history and a future of this income- they don’t want to qualify you on a larger income to only have it fall off and then you know what happens……