Does Unemployment Count as Income When Buying a House?
If you’re a seasonal worker thinking about buying a home, you may be wondering: “Do unemployment benefits count as income when buying a house?” The answer is yes — as long as you’ve been getting the benefits for at least two years and will continue working at your seasonal job. Understanding how to use unemployment income to qualify for a mortgage loan may help you determine if you can buy or refinance a home.
Do unemployment benefits count as income for a mortgage?
Lending guidelines only allow you to use unemployment benefits to qualify for a mortgage if you can provide proof that the income has been received for at least two years. Employers may also need to confirm seasonal employees are likely to be rehired in the future.
For example, landscapers or construction workers often work on projects until they’re completed, while ski resort employees typically only work during the winter. As long as workers in these types of temporary positions have a two-year history of unemployment income in between jobs or seasons, it can be used to qualify for a new mortgage.
However, getting a mortgage based on unemployment income is no walk in the park — the lender may impose stricter requirements to offset the added risk, such as requiring larger cash reserves or a cosigner. Unfortunately, if you’re receiving unemployment benefits due to a recent layoff, the lender won’t count it as income for a mortgage preapproval.
Unemployment income and taxes
The IRS generally considers unemployment benefits to be taxable income, and the benefits are reported on Form 1099-G. You’ll need to include the amount you receive on your tax return, as well as any withholdings.
Some states don’t automatically withhold taxes from unemployment benefits. However, you can sign up for voluntary withholdings to reduce the risk of owing taxes later. In addition, unemployment income isn’t considered “earned income” for the earned income tax credit (EITC). If you have questions about how unemployment income affects your tax bill, it’s best to reach out to a tax professional.
4 mortgage programs that allow unemployment income to qualify
Most conventional and government-backed home loan programs allow you to use unemployment income in certain situations. However, you will still have to meet the minimum mortgage requirements for credit score, down payment and debt-to-income (DTI) ratio for your chosen loan type.
Take a quick look at the guidelines for mortgage loans for unemployed borrowers, organized by program:
| Mortgage program | Unemployment income requirements |
|---|---|
| Conventional loan |
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| FHA loan (insured by the Federal Housing Administration) |
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| VA loan (backed by the U.S. Department of Veterans Affairs) |
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| USDA loan (guaranteed by the U.S. Department of Agriculture) |
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How to document unemployment income for a mortgage
You’ll need to collect extra paperwork to use unemployment income when you apply for a home loan. Gather the following documents ahead of time:
→ Two years’ worth of tax returns. Unemployment income can only be used if it appears on your federal tax returns.
→ Employer verification of your job history. Lenders typically contact your employer verbally to confirm you’ve worked at least two years in a seasonal job. Your lender may also require a written verification of employment.
→ Confirmation you’re likely to be hired again next season. Your employer may need to give the lender a thumbs up on future work to ensure you’ll continue to earn the income to repay your mortgage.
Ways to strengthen your mortgage application while unemployed
Here are some strategies that may help boost your mortgage approval odds while receiving unemployment compensation:
- Show cash reserves: If you can demonstrate that you have significant savings to cover your mortgage payments, it may help your chances of getting approved for a home loan.
- Apply with a cosigner: Applying for a mortgage with a cosigner, such as an employed spouse or parent, may help strengthen your loan application.
- Provide proof of other income: Having additional income streams — including income from a business, rental property or investment account — can show a lender that you’re financially ready for homeownership.
Ready to compare refinance offers? Get Your Best Rates from Top Lenders TodayHow to get a mortgage without income verification
Some home loan programs don’t require proof of income or employment. And in some cases, lenders may allow you to prove you can repay the loan by converting some of your assets to income.
→Streamline mortgages. You may be able to refinance without any income documentation by using an FHA streamline refinance or a VA interest rate reduction refinance loan (IRRRL), if you currently have an FHA or VA mortgage.
→No income verification mortgages. Mortgage lenders may offer nonqualified mortgage (non-QM) programs that allow you to qualify for a mortgage with documents or assets besides your tax returns or pay stubs. These loans may include:
- Asset depletion loans. Typically for borrowers with a high net worth, the lender divides the total cash balance of a cash asset by the loan term and uses the result as income to help you qualify.
- Bank statement loans. With these programs, lenders look at deposits on your bank statements for a one- to two-year period to calculate income for the loan instead of using tax returns, pay stubs or W-2 forms.
- Debt-service ratio loans. Real estate investors can qualify for mortgages purely based on the rental income of the home they’re buying, as long as they can afford the higher down payment and interest rates.