to see if there are any trends that would point to risk.
One of the most common income issues is gaps in employment. If a borrower has a history of being unemployed for a few months every few years, that’s a huge red flag. If the borrower leaves jobs quickly without having another job prepared to enter soon afterward, it is likely that they will continue that trend after they sign the mortgage. That is a major risk for the lender. Another common issue is that the borrower has only been at his or her current job for a year or two. Quality lenders like to see at least two years of straight employment at one institution. That makes the lender feel secure that the borrower has a job and won’t be leaving any time soon. However, lenders are not going to automatically refuse a loan if a borrower has a history of changing jobs every few years. A smart lender will look at the kinds of jobs the person has had. For example, if a loan applicant is a restaurant manager and has worked at five different restaurants in the past 10 years, that’s likely to be OK for the lender. The reason for this is that the jobs are all in one industry, which shows that the borrower has an established career. If an applicant has had five jobs in 5 years, and each one is in a completely different industry, that will be a problem. That shows the applicant doesn’t have an established career and poses a risk.
QUALITY OF INCOME
As you would expect, the number one quality lenders are looking for in a potential borrower is whether or not they are employed. W-2 income — where an employer pays an official employee a regular paycheck with taxes taken out — is the best type of income, because it shows job security.
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