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What sort of demands is it reasonable for a home loan lender to make on the borrower?

For example, if a first-time home buyer with a FICO score in the 600s relocates to another city and applies for a $200k home loan with a $100k down-payment while they are seeking employment in the new city, what sort of stipulations (if any) is it reasonable for the lender to make? Is it reasonable that the lender stipulate they work full-time for a certain amount of time first? Or does it really depend on the details of their financial record?

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In your example you want them to loan you $200K. Yet without a job you don't have a source of income. The $100K deposit either wipes out your savings or makes a significant dent in your savings. The lender will be concerned that in a matter of months the borrower will be unable to continue to make payments.

The size of the deposit as a percentage of the value of the house (33%) does help because it is above 20% so there is no requirement for Mortgage insurance. The size also means that you will not be as likely to to walk away because it is your money that is at risk.

But they have decide if your situation is worth the effort. The 600's is a big range. If the don't have confidence that you will find full-time work at your old salary, they will not be comfortable making the loan. Going through the process of making a loan and then 6 months later the borrower defaulting, then having to spend months with the foreclosure process may not be the best use of their time and money.

You do have choices. You can rent for the first year. You will be eating into the down payment while you are looking for a job. But you can go for a monthly rent that is smaller than the desired salary can support, so that you can replenish it once you are employed.

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  • Suppose the borrower lands a job, but it doesn't start until a few months later. Will the lender still demand 30+ days of paychecks, or are there lenders who would honor a work contract?
    – Geremia
    Commented Jun 22, 2015 at 21:47
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    Most lenders want a lot more than 30 days. They want to see work stability. I think with a 650 credit score you're going to have a hard time without at least six months to a year of work history - and some will want more than that.
    – Joe
    Commented Jun 23, 2015 at 5:14

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