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Can I Use Unemployment Compensation to Qualify for a Home Loan?

By Gina Pogol
Mortgage Credit Problems Columnist


Buzz Asks: Dear Gina, I had a good job with a good company for several years. Unfortunately, we got killed by the economic downturn and will be closing our doors next week. I will be getting unemployment compensation and it will be enough to cover a mortgage payment. I found a great deal on a home--will a lender let me use my unemployment payments to qualify for a mortgage?

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Gina Says:

Dear Buzz,

I am very sorry to hear about the loss of your job. And I am glad that your unemployment compensation is sufficient to cover a mortgage payment. However, conventional mortgage lenders and FHA underwriters do not count income to qualify unless you can show that it is expected to continue for at least three years. Because unemployment benefits generally run out after 26 weeks, they can't usually be used to qualify. Even if you don't have bad credit, mortgage lenders aren't comfortable lending to people without jobs.

There is one situation in which unemployment compensation can be used to qualify for mortgage financing. Seasonal employees with a history of working and then collecting unemployment every year are allowed by FHA to count the unemployment compensation as income. For example, where I live, many people work in the ski industry and for golf courses. And it is common to be laid off at the golf course before the ski resorts open, and then from the ski areas before the high season begins at the golf courses. So these folks collect unemployment once or twice every year--and if that's your pattern, you can use unemployment compensation as income for mortgage qualifying.

That doesn't seem to be the case with you, though. The news is bad; unfortunately credit lines or home loans aren't widely available to the jobless. However, with your solid work history, it is likely that you would be immediately eligible for a home loan once you have secured a new job. In that case, the underwriter would view your total history, including five years of stable employment beforehand, your reaction (document your job search efforts), and the expected income of your new position (usually verified by a letter from your new employer and your first pay stub) in order to give you full credit for your earnings.

Good luck and thank you for writing,

Gina

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