Freddie Mac Guidelines: Using Income That Starts After Closing

When You Can Use Future Income for Your Mortgage

Fannie Mae allows lenders to count income that hasn't started yet, but only in specific situations. This typically happens when you're switching jobs during the mortgage process or getting a promotion with a salary increase.

You have two main paths. Option one covers both new jobs and salary increases with your current employer. Option two only applies to new employment but offers more flexibility on timing and property types.

Say you're a teacher earning $50,000 who just accepted a principal position starting in August at $75,000. If you're buying a home in June, your lender might be able to use that higher salary to qualify you for the mortgage.

The Two Options Explained

Option One: New Job or Salary Increase

This option works for both new employment and raises with your current employer. The new income must start within 90 days of closing. You can use this for purchase transactions and no-cash-out refinances on your primary residence only.

Your new employer cannot be a family member or have any interest in the property you're buying. The income must be salaried — no hourly wages, commission, or bonuses count.

A marketing manager earning $60,000 accepts a director role at a different company starting $80,000 two months after closing. This scenario fits option one perfectly.

Option Two: New Job Only

Option two only covers new employment, not salary increases with your current employer. The job must start before you actually get the loan, but there's no limit on how long after closing it can begin.

This option allows more property types — primary residences, second homes, and investment properties. You can also use it for cash-out refinances. However, your new income must equal or exceed what the lender used to qualify you.

An accountant leaving public accounting for a corporate role that starts three months after closing could use option two, assuming the new salary meets the income requirement.

Required Documentation

Your lender needs a fully executed employment offer letter or contract. The document must include your start date, annual salary, and employment terms. Any contingencies must be cleared with written proof from the employer.

For salary increases with your current employer, you need documentation showing the raise is approved and explicitly granted to you. A simple email from HR won't suffice — you need formal documentation.

The lender will also perform a 10-day pre-closing verification to confirm nothing has changed with your employment terms. This protects against last-minute job offer withdrawals or modifications.

The Cash Reserve Requirement

Here's where many borrowers get surprised. You need extra money in the bank to cover the gap between closing and when your new income starts.

The calculation works like this: Take your total monthly housing payment plus all other monthly debt payments. Multiply by the number of months between closing and your start date, plus one additional month.

A borrower with $2,500 in monthly housing costs and $500 in other debt payments who starts their new job two months after closing needs $9,000 in additional reserves ($3,000 × 3 months).

You can reduce this requirement by any income you'll receive during the gap period. If you're getting unemployment benefits or have freelance income, that counts toward the calculation.

Why These Rules Exist

Fannie Mae created these guidelines to manage risk while helping qualified borrowers. Future income creates uncertainty — jobs can be rescinded, start dates can change, or employment terms can be modified.

The cash reserve requirement ensures you can make mortgage payments even if something goes wrong with the new job. The 90-day limit for option one prevents borrowers from counting income that's too far in the future.

The restriction to salaried income eliminates variables. Commission-based or hourly jobs have income fluctuations that make them unsuitable for future income calculations.

Common Complications

Employment offers with contingencies create problems. If your offer depends on passing a background check, drug test, or obtaining a professional license, you need written confirmation these requirements are cleared.

Family businesses pose another issue. If your spouse owns the company offering you the job, Fannie Mae won't allow the income. The same applies if the employer has any financial interest in the property transaction.

Timing changes can derail your loan. If your start date gets pushed back after you've applied, you might no longer meet the 90-day requirement for option one. This could force you to switch to option two or find alternative income sources.

Some borrowers struggle with the additional funds requirement. Coming up with several months of mortgage payments in cash, on top of your down payment and closing costs, can be challenging. This money must be in depository or securities accounts — retirement funds typically don't qualify.

Documentation Timing Matters

Your employment documentation must be current and specific. Generic offer letters that don't include salary details or start dates won't work. The lender needs exact figures to calculate your qualifying income.

The 10-day pre-closing verification can catch problems late in the process. If your employer doesn't respond promptly or reports changes to your employment terms, your closing could be delayed.

Keep your new employer informed about the verification process. Some HR departments are unfamiliar with mortgage requirements and may not understand the urgency of responding to lender requests.

References

For the official guidelines, see 5303.2: Income commencing after the Note Date in the Fannie Mae Selling Guide.