My salary dropped while I applied for a mortgage. Now what?

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There are several criteria you will need to meet to get approved for a cash loans. You will need to have a decent credit score, debt to income ratio, a stable source of income and a salary high enough to cover the mortgage you want to take out. But what if your paycheck goes down just when you’re about to apply for a home loan? This can happen if your hours are reduced or if your employer implements pay cuts. Here’s what you need to know.

Are you still earning enough to cover your mortgage?

Whether or not a lower salary kills your chances of getting a mortgage depends on your income relative to the loan amount you want to take out. Suppose your salary of $ 80,000 drops to $ 70,000. If $ 70,000 is enough to qualify for the mortgage you’re applying for, that drop shouldn’t be a problem. Likewise, if you apply for a mortgage together with someone else, your combined income may be enough to cover your loan amount, even though your salary is now lower than it was a few weeks ago.

Ways to compensate for a lower salary

If a reduction in income makes you no longer eligible for the mortgage amount you hoped to borrow, you still have a few options. First of all, you can see if it is possible to make a down payment on your house. If you do, you won’t need to borrow that much money, so your lender may be comfortable moving forward.

Another option is to see if you can instantly increase your income with a second job. If you can prove to your lender that your side gig has the potential to be continuous and stable, that might be enough to seal the deal.

If these tactics don’t work, you may need to adjust your home buying budget and aim for a cheaper home – a home that a smaller mortgage is enough to cover. Or, you can delay your home search, save some money, and then apply for a mortgage again once you have a bigger down payment.

What if your pay cut is temporary?

A permanent pay cut could hurt your chances of getting a mortgage. But what if this reduction is temporary? What if your hours are reduced for now, but you plan to return to work full time in a few months? If so, a letter from your employer confirming that this may be sufficient to influence a mortgage lender to go ahead with a home loan. So it’s definitely worth a try.

You never know when your income might be hit out of nowhere, and unfortunately this scenario could hurt your chances of getting a mortgage. But that doesn’t mean that you are guaranteed to be denied a home loan because your income has been reduced. Before assuming the worst, talk to different lenders and see what options you have to qualify for a loan based on a lower salary. Between the flexibility of your lender and your own flexibility (for example, buying a cheaper house and borrowing less), you can find a solution that works.

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Ascent’s mortgage expert recommend this company to find a low rate – and in fact he used them himself for refi (twice!). Click here to find out more and check your price. While this does not influence our opinions on the products, we do receive compensation from partners whose offers appear here. We are always on your side. See the full advertiser disclosure of The Ascent here.

We strongly believe in the Golden Rule, which is why editorial opinions are ours only and have not been previously reviewed, endorsed or endorsed by the included advertisers. The Ascent does not cover all the offers on the market. Editorial content for The Ascent is separate from editorial content for The Motley Fool and is created by a different team of analysts. The Motley Fool recommends Bitcoin. The Motley Fool has a disclosure policy.

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