How Travel Nurses Qualify for a Mortgage
/Advice From A Mortgage Loan Officer
Macatawa Bank’s Mortgage team welcomed Alex to the team in 2016. Before joining the Mortgage team she served as a Commercial Credit Analyst. Prior to her work at Macatawa Bank, Merz was a Customer Service Representative at Chemical Bank. Alex holds her Bachelor's degree from Davenport University, where she double majored in Marketing and Finance, and played both basketball and golf. When she’s not fitting her customers with the perfect mortgage, Alex cheers on the Detroit Lions, no matter how bad they might be playing.
616.502.8044 akiel@macatawabank.com Website
H: I’ve heard travel nurses say they haven’t been able to get approved for a mortgage loan. What is a bank looking for to qualify travel nurses to obtain a mortgage?
A: Ideally, an underwriter is looking for a 2+ year history of being a traveling nurse with back-to-back contracts. If the potential borrowers are able to save up for a down payment during this time and build their credit, they will end up most likely with a better interest rate and lower monthly payments once they do qualify.
H: What if the travel nurse is looking to buy a house before that 2+ year limit? Does the amount of time they worked as a full-time employee at a hospital before they started travel nursing count at all?
A: If they are not able to wait 2 years to buy, they could consider a co-borrower and then refinance the loan into their own name solely once they have the two-year history. A bank may consider an income exception if the borrower has excellent credit, a good down payment, and a low debt-to-income ratio. They would need to see at least a one-year history of income being a traveling nurse though. This is not guaranteed, but the borrowers could apply for a pre-qualification after at least one year of income and have the bank take a look at the application. The exceptions would be on a case-by-case basis, and a strong co-borrower usually helps.
H: You mentioned back-to-back contracts. It can be hard to start another travel contract the very next week so a lot of nurses take a few weeks off in-between contracts. Would that still count as back-to-back? Any recommendations in the timeframe between contracts if someone is looking to obtain a mortgage?
A: A few weeks off would likely still be considered back-to-back. It’s understood that the industry norm could have a week or two in between contracts. Once a nurse starts approaching a month between each contract, there may be an explanation required for the gap in employment. Since the time in between each contract could vary, that’s another reason a two-year history is helpful to see the average income and the average amount of time worked year over year.
H: A decent chunk of travel nurse income comes in the form of tax-free stipends for housing and food. Does the bank consider this when evaluating the debt-to-income ratio?
A: The stipend would have to be documented and consistent to be considered income. The structure of income needs to remain the same year over year to be calculated as an average. If not every contract has a stipend, it may be difficult to consider it as income. However, when calculating the debt-to-income ratio, items like food expenses are not necessarily counted against the borrower. For example, the total debt considered in that ratio are items like loans from the credit report, property taxes, homeowners insurance, the proposed new loan, and HOA payments if applicable. Items like food expenses, gas, utilities, etc. are not counted as a debt payment each month. So the stipend portion of payment could go towards personal expenses and not necessarily considered to help with the loan repayment.
H: What percent would you recommend for a down payment?
A: Most of our loan options require at least a 5% down payment. If you don’t have 20% down, that is okay, but there will be PMI payments required. PMI stands for private mortgage insurance and is an extra portion of the monthly payment that does not go toward the principal balance of the loan. The more one puts down, the lower the PMI payment will be. I would never recommend someone use all of their liquid funds towards the down payment in case a large expense comes up unexpectedly. If someone can’t come up with 20% down, it shouldn’t necessarily stop them from buying a home.
H: I’ve heard it is not good to take out a new credit card or loan before applying to get a mortgage. Any other things that nurses should try not to do?
A: That is true, if the loan can wait, don’t apply for it until after the home purchase. Also, don’t apply for these things during the loan process either. If one does, the new loans have to be counted in the debt-to-income ratio on the mortgage application. Try not to save your down payment in cash under your bed. We cannot accept funds for a mortgage in cash because we have to source where those funds came from. Have the funds deposited in a savings, checking, or money-market account.
H: How soon would you recommend a travel nurse start talking with a mortgage broker when they want to start the process of getting a home mortgage loan?
Each scenario is different for each person. If someone is serious about trying to buy a home in the future, they can truly reach out to a mortgage lender at any time. The lender can explain if they couldn’t get approval now, what it would take to get approval and what the borrower should be working on. The lender could also go through options that would involve a co-borrower if the income of the traveling nurse can’t be considered at that time. They can also review how much income would be required based on the purchase price desired.
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