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Background: I & the wife are looking to buy a house priced at $250k via an FHA loan. One of the requirements for the loan is that we have a 2 year continuous employment.

I have a 1 year gap in income(i.e. I was employed but not paid because I wasn't working on any project) Anyways, after that 1 year gap, as of today i have been employed and earning for 1 year and 7 months. So I am short of the 2 year employment requirement by 5 months. We have good credit scores (715 - 750)

Question: Due to this we have been declined a pre-approval by one bank and asked to come back in 5 months time. Another major bank has pre-approved us(based on all the info i gave them on the phone), but I fear that once we start closing, they will start reviewing all the info i gave and decline the loan at a late stage of closing.

I don't want to wait 5 months and risk somebody else picking up the house in that time. Nor can i put down 25% as down payment on a conventional(non FHA) loan.

What kind of creative financing strategy can be done here?

UPDATE:2 of the major banks that pre-approved me explained that my history is fine and since i have been employed in the same line of work before the gap, it is not an issue. Also since I was employed and earning for more than 2 years before the gap, that bolsters my case. I will just need to explain my case in writing. But my file is strong.

But if any body has any better and creative financing strategies, please do share.

  • If the requirement is from FHA, then you have to either satisfy the requirement or avoid the FHA. Since you said that you cannot do the latter and wouldn't wait for the former, can't see why would you ask the question. – littleadv Aug 9 '12 at 1:56
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    The days of nodoc loans are long gone. You may find similar requirements on non-FHA loans. – mhoran_psprep Aug 9 '12 at 3:32
  • @trainer there's a reason for these requirements. That's lending to people like you that got us all into this mess. If you can't keep a steady job for two years - how can you take hundreds of thousands in loans? Just saying. – littleadv Aug 9 '12 at 3:48
  • "employed but not paid" Would you care to expand on that a little? – DJClayworth Aug 9 '12 at 15:47
  • @trainer, this is fairly common to people on a work visa from a certain country, to the best of my knowledge. This is illegal, and both you and your employer broke the law. Another reason for lenders not to lend you, when you're deported - who's going to pay the bill? – littleadv Aug 9 '12 at 17:25
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Do you need to put down 25% on a conventional loan? Conventional loans can be done with 5%, 10%, or 20% down (if you're willing to pay PMI for the <20% down scenario).

If you don't like FHA's terms, don't do an FHA loan..

  • +1 "If you don't like FHA's terms, don't do an FHA loan.." – littleadv Aug 10 '12 at 18:07
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These are your options:

  • Wait until you have two years of continuous employment.
  • Get a family member to gift you enough of a down payment to exceed 20%. You need $50,000 to reach the 20% level. Due to gift tax rules that will mean that the money will have to come from multiple people, or the donor will have to file a gift tax return with the IRS.
  • Get additional jobs to get enough money for a bigger down payment.
  • Try additional lenders: banks, mortgage brokers, credit unions. The best bets are institutions you have a history with.

Unfortunately this will not be a quick process.

You should note that until a potential lender goes through a detailed review of your finances you have only been pre-qualified. This is not as good as pre-approved. With pre-qualified they are basing the determination on what you told them, not what you can prove.

Because you are aware of your short period of continuous employment you are best to be completely honest with a potential lender. That way you don't run into problems 30 days down the road when they realize the issue. The home seller will not be happy; and there was time and money wasted on down payments, credit checks, home inspections, and appraisals.

In the US in most markets while there is a significant risk that a particular house will not be available in 5 months, there is a very slight risk that a neighborhood will not be available in 5 months.

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    It's a huge mistake to get hung up on "we must have this house". There will be other houses available in five months time that will be just as good as the one you want - maybe better. – DJClayworth Aug 9 '12 at 15:49

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