Table Of Contents
2. Home Buying For Staff Nurses
- Struggle 1: Using all your pay to qualify
- Struggle 2: Explaining employment gaps
- Struggle 3: Dealing with student debt
3. Home Buying For Travel Nurses
- Struggle 1: Lenders might view you as a job-hopper
- Struggle 2: Justifying variable income
- Struggle 3: Using per diem pay to qualify
4. Standard Loan Programs Nurses Can Use
- Conventional Loans
- Federal Housing Administration (FHA) Loans
- US Department of Agriculture (USDA) Loans
- Department of Veteran Affairs (VA) Loans
5. The 10-Step Home Buying Process
- Find A Real Estate Agent
- Mortgage Pre-Approval
- Buyer Consultation
- Home Search
- View Homes
- Make An Offer To Purchase With Deposit
- Home Inspection
- Loan Underwriting, Appraisal, And Final Approval
- Close On Your Home
- Move In
Introduction
Mortgage lenders are not risk-takers, and with good reason. After all, the last thing they want is someone running away from their loan, so they base on security and predictability when assessing potential borrowers. For most lenders, job stability means working 40 hours weekly, receiving a fixed salary each month, and never between jobs.
However, nurses don't fit into this category as night differentials, overtime, and employment gaps define the nursing profession. Travel nurses are even in a more complicated situation as employment gaps are a norm, not an exception. Furthermore, many travel nurses wonder if the non-taxable income indicated on their paycheck is considered qualifying income.
But never fear: securing a mortgage as a nurse is possible. This guide outlines how staff and travel nurses can overcome the common hurdles in purchasing their dream home.
Most nurses qualify for down payment and closing cost assistance.
Home Buying For Staff Nurses
As a staff nurse, you will have an easier time securing a mortgage. You have a base income to present to lenders, which is a plus point in risk assessment. But that alone is not a guarantee lenders will approve your mortgage application.
Struggle 1: Using all your pay to qualify
Your paycheck consists of two parts, the base and extra income. With careful planning, you can make every cent count when applying for a mortgage.
Base income
When applying for a mortgage, you can present proof of your base income, such as an offer letter to your lender.
Lenders require applicants to be in their line of work for two years before using base income to qualify for a mortgage. But as a nurse, you can bypass this two-year requirement as lenders typically consider nursing school as part of your work experience. Since RN schooling lasts more than two years, you already have the required work experience on day one of your nursing career.
If you wish to apply for a mortgage as a new grad, the lender may want to see an employment letter stating your expected hours and rate of pay. However, you'll have limited options if you're only using the base pay to qualify.
But if you want to buy a larger or newer home, the best option is to wait for two years or more from when you were hired as a staff nurse. Why?
Extra income
The compensation of nurses doesn't end with base income. They also get paid extra for working shift differentials and overtime. Fortunately, lenders will consider your extra income in your application so you can secure better mortgage terms. But for that to happen, you need 12-24 months of history of consistently receiving this type of pay.
Total income
Say, for instance, you have decided to apply for a mortgage after being a staff nurse for a few years. You currently work 36 hours weekly with a base pay of $30/hour. For the past two years, you worked 520 hours in night differential at a rate of $5/hour and 240 hours of overtime at a $45/hr rate.
Assuming you have 12-24 months' worth of paystubs showing consistent extra pay, here's how your lender would calculate your total income:
● Calculate your current base income.
First, multiply your hourly rate by the number of guaranteed hours you work weekly. In the mentioned scenario, that would be:
$30 × 36 (hours) = you are receiving $1,080 weekly.
Multiply that number by 52 weeks to determine your annual income.
$1,080 × 52 (weeks) = you are receiving around $56,160 yearly.
And finally, divide that number into 12 months.
$56,160 ÷ 12 (months) = in this scenario, your base income is $4,680/month.
● Calculate your differential income in the past two years.
Multiply your differential rate by the number of differential hours you've worked for the past two years. Using the example mentioned above, that would be:
$5 × 520 (hours) = you earned $2,600 of night differential pay for the past two years.
Afterward, divide that number into 24 months.
$2,600 ÷ 24 (months) = your differential income in the past two years is $108/month.
● Calculate your overtime pay in the past two years.
As with differential pay, multiply your overtime rate by the number of overtime hours you worked in the past two years. Using the scenario mentioned above, that would be:
$45 × 240 (hours) = you earned $10,800 of overtime pay for the past two years.
Divide that number into 24 months.
$10,800 ÷ 24 (months) = your overtime pay in the past two years is $450/month.
To summarize:
● Base income: $4,680/month
● Differential income: $108/month
● Overtime: $450/month
The total qualifying income the lender would use is $5,238/month. Unsurprisingly, the extra pay has put you in good standing with the lender. It will increase your chances of getting approved for a mortgage and snag you excellent terms.
Lenders prefer 24 months of history of receiving extra pay. But if you've been only receiving extra income for 12 months, you might need a letter from your employer attesting that your shift differentials and overtime are likely to continue. Meanwhile, you can't use a particular type of extra pay to qualify if you just started making it.
How to use all your pay to qualify
The key here is to have an immaculate paper trail. Here are some tips on documenting your income:
- Keep all your paystubs, especially the ones you're receiving at the end of the year (it shows the year's totals of all your income types)
- Obtain your W2s for the past two years.
- As mentioned, request a letter from your employer attesting that your extra pay is a long-term arrangement. (Many employers won't do this.)
- Write the lender a letter explaining why they should consider more of your income.
- Provide the lender with a contact name and number for your HR department.
- Find the final paystub and W2 from all your former employers in the past three years.
Struggle 2: Explaining employment gaps
It's not uncommon for staff nurses to have employment gaps. If you have had gaps in the past two years before your mortgage application, write the lender a letter explaining what you were doing at the time. Furthermore, you can make your application more attractive by providing proof that you made consistent rent or mortgage payments during your employment gaps.
The lender isn't prying – they just want assurance that you will have a consistent income to cover your mortgage payments.
If possible, avoid changing employers before applying for a mortgage to save yourself the hassle.
Struggle 3: Dealing with student debt
According to a study, about 70% of all graduated nurses have student debt, and that number is expected to increase due to increasing education qualifications. Student debt will affect your debt-to-income ratio or DTI, which is one of the critical factors lenders consider when you apply for a mortgage.
Most lenders want to see a DTI of 43% or less. To illustrate: if your gross monthly income is $5,000, you'll need to keep all your debt payments combined under $2,150 ($5,000 × 0.43). If you have $750 in debt payments each month, that means you can afford a $1,400 monthly mortgage.
The following are a few strategies to work around student loans and ultimately lower your debt-to-income ratio.
● Pay off debts with the lowest balance first. Don't focus too much on your student loan balance. For instance, if your auto loan payments are high but you've nearly paid them off, get rid of them before applying for a mortgage. By paying off an account, you'll reduce your monthly payment obligations and improve your DTI ratio.
● Refinance your student loans. Doing this allows you to lower your interest rate, extend your loan term, or obtain a combination of the two. That will cut your monthly budget for loan payments and improve your DTI ratio in the process.
● Enroll in an income-based repayment plan. This enables you to lower your monthly student loan payments to align with your current income level. Such plans allow you to make payments as low as 10 to 15 percent of your monthly income and can ease some pressure on your budget.
Most nurses qualify for down payment and closing cost assistance.
Home Buying For Travel Nurses
Travel nurses also face the struggles staff nurses have. However, the situation of travel nurses is a little more complex. Short contracts, per diem work, changing agencies – this is travel nurses' nature of work. This doesn't mean you're a bad employee with trouble maintaining work, but without context, a lender may view your career history negatively.
If you're a travel nurse, add these steps to your game plan to get approved in no time.
Struggle 1: Lenders might view you as a job-hopper
The life of travel nurses usually goes like this: first, they work for an agency for several weeks. Once the contract is done, it takes around one week before most travel nurses can pick up another contract. Meanwhile, some travel nurses take 1-3 months off for leisure and go back to work mode afterward.
This scenario is the travel nurses' definition of "stable employment." But from a lender's standpoint, your employment record looks patchy and might suggest you can't hold down a job – the very thing they despise. Outlined below are the steps you can take to overcome such a hurdle.
● Write a letter of explanation. Lenders don't know the ins and outs of the nursing industry, let alone travel nursing. Provide the lender context by writing a detailed letter explaining how travel nursing works. Assure the lender that your specialty is in-demand and there is virtually no shortage of contracts you can take.
You can also add weight to your application by requesting your recruiter to write a letter bearing the company's letterhead that explains the nature of your work.
● Get two years of traveling under your belt. You'll need to build up at least 24 months of history as a travel nurse so the lender can average your income along with employment gaps and changes in your pay rates.
But if you've only been traveling for 12 months, the lender might still accept your employment history if you have at least 12 months of staff nursing experience.
● Save all your contracts. This is to explain employment gaps and prove you're obtaining consecutive assignments. Moreover, keeping digital copies of your contracts is a good idea so you can easily access them when needed.
● Keep all your pay stubs, W-2s, year-end documentation, and agency contact info. Providing as many pay stubs as possible will help lenders calculate your qualifying income and provide the best mortgage for your situation.
Additionally, keep handy a contact name and number for each of the agencies you've worked for – those who are willing to verify your employment by phone or letter.
Struggle 2: Justifying variable income
The income of travel nurses varies by contract, location, and season. Again, you can explain this to your lender by providing 12 to 24 months of history. According to Fannie Mae, "two or more years of receipt of a particular type of variable income is recommended; however, variable income that has been received for 12 to 24 months may be considered as acceptable income, as long as the borrower's loan application demonstrates that there are positive factors that reasonably offset the shorter income history."
You can get approved if the lender can average your variable income over a reasonable amount of time. And as noted earlier, documentation is crucial, so keep your contracts, pay stubs, W-2s, and offer letters.
Struggle 3: Using per diem pay to qualify
Per diem pay is the reimbursement travel nurses receive for meals, lodging, travel, and other expenses while working away from their tax home. Per diems are non-taxable and not considered by the IRS as wages.
Many agencies bump up per diems and pay lower rates for the actual work. While this is advantageous for nurses at tax time, it may appear to a lender that your income is much lower than it actually is as per diems don't show up on tax returns. This might put you at a disadvantage as lenders typically use tax returns to verify your income history.
Hence, it is best not to accept travel nursing assignments with high non-taxable stipends and low base pay. The last thing you want is to discover after two years that a lender can't use all that income history.
Note: You can use your housing stipends as qualifying income if you've been receiving it for the past 12 months and if it’s likely to continue for the next three years.
Standard Loan Programs Nurses Can Use
You don't have to use one of the few mortgage programs tailored to nurses. In fact, some of the most affordable types of home loans are widely available across the market. These include:
● Conventional Loans - these aren't backed by the government. However, most conventional loans conform to the rules laid by Fannie Mae and Freddie Mac, which are two government-sponsored enterprises. At least 3% down and a credit score of 620 or better are required to qualify.
● Federal Housing Administration (FHA) Loans - these are the go-to loans for anyone who needs more leniency on certain aspects of their situation. At least 3.5% down and a minimum credit score of 580 are required for FHA loans.
● US Department of Agriculture (USDA) Loans - these mortgages don't require a down payment. However, you must meet income requirements and buy a home in a suburban or rural area to qualify for a USDA loan.
● Department of Veteran Affairs (VA) Loans - if you have a military background, this is probably your best bet. VA loans require zero down, and lenders will be the ones setting their own credit score thresholds, which lie between 580 and 660. VA loans also have ultra-low interest rates, no private mortgage insurance, and low closing costs.
The 10-Step Home Buying Process
- Find A Real Estate Agent
- Mortgage Pre-Approval
- Buyer Consultation
- Home Search
- View Homes
- Make An Offer To Purchase With Deposit
- Home Inspection
- Loan Underwriting, Appraisal, And Final Approval
- Close On Your Home
- Move In
1) Find A Real Estate Agent
Let's face it, when was the last time you dealt with negotiating contracts, insurance, appraisals, home inspections, property lines, and state laws. Probably not at all, right?
That's why finding a great Real Estate Agent is a critical part of the home buying process to ensure that the transaction goes smoothly, and that any challenges are dealt with quickly. Fortunately, you've found me. And perhaps the best part of all is that my services come at no cost to you.
Buying a home is a life changing experience, and you deserve to know the step-by-step process. You can count on me to guide you safely through the entire home buying process from start to finish. I'm here to answer all your questions, and give you the guidance you deserve.
2) Mortgage Pre-Approval
Your real estate agent will connect you with a mortgage broker that will find the lender who is a great fit for your particular situation. It is important that you know the loan amount that you qualify for and how much home you can afford before you start looking for a home.
Pre-approval for a mortgage involves your lender doing a credit check, verifying your income and employment, reviewing your financial statements, and having a look at your assets to ensure you fall within their lending guidelines.
It’s important to remember that you don’t have to borrow the full amount that you've been pre-approved for. It's also essential that you make sure the mortgage you're looking at is within your financial means.
3) Buyer Consultation
The buyer consultation is the time where you discuss with your Real Estate Agent exactly what you want in your new home, and also what to expect during the entire home buying process.
The listing agent is working for the seller, and they are not interested in getting you the best price possible. But that's why I am here to represent you, and to look out for your best interest.
During the consultation, we will clearly identify the things you absolutely "must have" in your home, the things that you would "like to have", and the things you could care less about. We'll discuss how we will communicate with each other, and what you can expect from me in terms of consistent follow up. In addition, we'll discuss the timeline and different milestones of the home buying journey so you'll know exactly where we are at every stage.
4) Home Search
At this stage in the home buying process I will search the MLS for homes that meet your criteria based upon the information you shared during the consultation. I'll find several homes that meet your specific criteria, and forward them to you for your review.
Doing my search, I always consider the following characteristics listed below that generally define a good neighborhood to live in.
With your approval, we'll move to the next step which is to schedule a time to view the homes.
1. Access to Essential Areas
No one enjoys long commutes to work, school, or shopping centers. While you don’t need to choose a home right on top of these things, you still want it to be relatively easy to get where you need to be.
2. Good Schools
Good schools are very important to house hunting families. Most states provide school testing scores online. Be sure to do your research on the schools in the neighborhoods that you’re shopping
3. Neighborhood Reputation
Crime rate and home maintenance are two key factors that influence a neighborhood’s reputation. A quick drive through town will give you a picture of how well residents are maintaining their homes. And crime statistics are available online.
4. Growth Potential
Be sure to buy a home in an area that people are going to want to move to in the future. Have a look to see if new homes are being built in your prospective neighborhood. That’s usually a positive indicator for future growth.
5) View Homes
The fun begins! It's time to take the list of homes I found from the MLS search and go see them up close. I will schedule a showing time that works best for you.
6) Make An Offer To Purchase With Deposit
Once we find the home that you want, we'll make a good offer to purchase. However, before we make the offer, I will strategize and make sure the offer we make keeps us in a strong negotiating position.
The seller rarely accepts the initial offer. They’ll usually counteroffer and change the terms of the offer. But that's where I will come in and submit a counteroffer that keeps your best interest in mind.
Once the offer is accepted, you will be under contract to purchase your first home.
7) Home Inspection
At this point you are under contract to purchase. However, we want to make sure that the home does not have damage that would prevent you from completing the purchase, and that the home is worth at least what you are contracted to pay for it or more.
A home inspection is a cost you have to pay out of pocket, and generally costs anywhere from $400 to $600.
Note: This cost range can vary depending on the area and the property itself.
8) Loan Underwriting, Appraisal, And Final Approval
At this stage in the process, the lender may have various conditions that need to be met in order to put the final stamp of approval on your loan. One of the key items that is required during underwriting is an appraisal so that the lender can verify the value of the property.
The lender will order the appraisal, but you will have to pay for it. The appraisal cost anywhere from $300 to $500.
Note: Just the like the inspection, this cost range can vary depending on the area and the property itself.
Once the appraisal is obtained and found to be acceptable, you will then be on your way to final loan approval pending any final loan conditions that need to be met, such as additional documentation or verification of certain items relevant to your loan application.
9) Close On Your Home
It's time to sign your loan and mortgage paperwork from the lender, and for the seller to sign the deed that officially makes you the new home owner.
10) Move In
This is what you've been waiting for! Once all the paperwork is signed at closing, you will be handed the keys to your new home.