Overtime Income and Your Mortgage: Decoding Fannie Mae and Freddie Mac Guidelines
Planning to buy a home and rely on overtime income to beef up your qualifying amount? It’s crucial to understand how mortgage giants Fannie Mae and Freddie Mac view this extra cash. While they share the goal of responsible lending, their underwriting guidelines for overtime income have some key differences. Let’s break it down in plain language:
Fannie Mae’s Stance on Overtime
- Consistency is Key: To count your overtime, you need to have received it for at least two years. Think of it as proving this isn’t a one-time windfall, but a regular part of your earnings.
- Future Projections: Fannie Mae also wants to be sure the overtime will stick around. They’ll look for evidence that your employer expects you to continue working those extra hours.
- Documentation Matters: Be ready to show pay stubs or W-2s to back up your overtime claims. Your lender may also request a letter from your employer confirming your overtime history and future outlook.
Freddie Mac’s Take on Overtime
- Shorter History Accepted: Freddie Mac is a bit more lenient on the time frame. They might consider overtime that’s been consistent for just one year, not two.
- Stability is Still Important: Even with a shorter history, Freddie Mac still wants to see that your overtime is stable and likely to continue.
- Bonus Income: While not exactly overtime, Freddie Mac has specific rules for counting bonuses. They’ll usually average your bonus income over the past two years, but there are exceptions for certain professions.
Key Differences to Note
- Timeframe: The most significant difference lies in the required history of overtime income. Fannie Mae demands two years, while Freddie Mac might accept one year.
- Bonus Income: Freddie Mac has more detailed guidelines for handling bonus income than Fannie Mae.
- Underwriter Discretion: Both Fannie Mae and Freddie Mac allow underwriters some flexibility in their decisions. They can consider factors beyond the strict guidelines, such as your overall financial stability and employment history.
What This Means for You
If you’re relying on overtime to qualify for a mortgage, it’s essential to:
- Know Your Lender: Ask your lender upfront if they sell their loans to Fannie Mae or Freddie Mac. This will help you understand which guidelines apply to you.
- Gather Your Documentation: Start collecting pay stubs, W-2s, and any employer letters that prove your overtime history.
- Be Honest and Transparent: Disclosing all your income sources upfront will help your lender accurately assess your financial situation and avoid any surprises during underwriting.
The Bottom Line
While overtime income can boost your mortgage eligibility, Fannie Mae and Freddie Mac have specific rules to ensure responsible lending. Understanding these guidelines and working closely with your lender will increase your chances of a smooth and successful homebuying journey.
