Can You Use Per Diem Income to Qualify for a Mortgage?
Qualifying for a mortgage can be a complicated process, especially when your income doesn’t fit into the traditional salaried mold. One common question that arises is: can you use per diem income to qualify for a mortgage? Per diem income is typically paid out to individuals for daily work-related expenses, making it different from regular income. Understanding how lenders view per diem earnings is essential for anyone seeking to qualify for a mortgage with this type of income.
What Is Per Diem Income?
Per diem income refers to daily allowances provided by employers to cover expenses such as travel, meals, or lodging when performing work duties. This type of income is prevalent among specific professions, including:
- Travel nurses
- Truck drivers
- Consultants and freelancers who travel frequently
- Construction workers on assignment away from home
Unlike a standard salary, per diem is often considered a reimbursement for costs incurred while on the job, rather than income in the traditional sense. One of the main benefits of per diem is that it’s usually non-taxable, provided that it’s not considered excessive and follows IRS guidelines.
How Lenders View Per Diem Income
When applying for a mortgage, lenders evaluate income differently depending on its type. Regular salaried income is easy for lenders to process as it’s predictable and consistent. However, per diem income is treated with more scrutiny, as it is not typically guaranteed, can fluctuate, and may not be seen as stable.
To use per diem income when applying for a mortgage, you’ll need to provide extensive documentation. This generally includes:
- Tax Returns: Lenders want to see at least two years of consistent per diem income reported on your tax returns.
- Pay Stubs: Provide proof of the per diem you receive on a regular basis, often from the last few months.
- Employer Verification: Some lenders may ask for a letter from your employer confirming the nature and consistency of your per diem earnings.
The key aspect lenders look for is stability and reliability. They need to ensure that the per diem income is a dependable source of funds to cover your mortgage payments.
Can You Use Per Diem Income to Qualify for a Mortgage?
The short answer is yes; you can use per diem income to qualify for a mortgage. However, there are some critical aspects to consider. Most lenders require that the per diem income be consistent for at least two years and that it’s documented clearly. Lenders often prefer stable, predictable income sources, so if your per diem earnings fluctuate significantly, it might pose a challenge.
In general, can you use per diem income to qualify for a mortgage will depend on your ability to prove the regularity and stability of your income, as well as how comfortable a lender is with considering per diem as part of your total earnings. Some lenders specialize in working with non-traditional income types and might be more flexible when assessing per diem.
Pros and Cons of Using Per Diem Income for Mortgage Qualification
Pros:
- Flexibility of Income: Per diem income can often be high enough to help support your mortgage payments, especially if you’re in a high-paying field.
- Tax Advantages: Because per diem is typically non-taxable, you may have more take-home income, which could improve your debt-to-income ratio.
- Fitting Niche Mortgage Products: Some mortgage products are designed to cater to individuals with non-salaried income, offering greater flexibility.
Cons:
- Lender Scrutiny: Lenders might view per diem income as less stable than regular income, requiring more documentation.
- Inconsistency: If your per diem income varies greatly, it can make it harder to prove the consistency required by lenders.
- Potential for Higher Interest Rates: Some lenders may charge higher interest rates for borrowers with non-traditional income, considering them a higher risk.
Qualifying for a Mortgage with Per Diem Income
One of the most important factors when trying to qualify for a mortgage with per diem income is documentation. Maintaining a thorough record of your per diem earnings, including tax returns and employer letters, will greatly help your case. Additionally, some lenders may require a higher down payment to offset the perceived risk associated with per diem income.
If your income history is consistent and your per diem earnings are steady over the required period, you stand a better chance of qualifying for a mortgage. It’s also beneficial to work with a mortgage broker or lender who has experience with non-salaried income types, as they will better understand your financial situation.
Real-World Examples
Consider a travel nurse who works across various states and earns a daily per diem for meals and lodging. If the nurse has maintained steady per diem income for over two years and has documented this consistently through tax returns and pay stubs, many lenders would consider this a qualifying income. However, if a consultant only works on contracts sporadically, with significant gaps in per diem earnings, this inconsistency might make it more challenging to qualify for a mortgage.
In both scenarios, the answer to [can you use per diem income to qualify for a mortgage] would vary based on income consistency and the lender’s criteria.
Best Practices for Mortgage Approval with Per Diem Income
- Maintain Consistent Records: Keep detailed documentation of your per diem income, including tax returns, pay stubs, and any employer letters that verify your earnings.
- Work with Experienced Lenders: Seek out mortgage lenders who understand per diem income and are willing to work with non-traditional income sources.
- Strengthen Your Financial Profile: Improve your credit score, reduce debt, and save for a larger down payment to boost your chances of approval.
Conclusion
The central question of [can you use per diem income to qualify for a mortgage] boils down to consistency and documentation. While it’s entirely possible to qualify for a mortgage using per diem income, it requires meeting specific lender requirements and proving that your income is stable and reliable. To increase your chances of mortgage approval, it’s crucial to work with lenders who understand per diem income and to have thorough, accurate records that reflect your earnings.
