Ask Grace: I Just Got Out of Prison, Can I Buy?
Q: Hey Grace, I saw you are an LO and hope all is well. I just have a couple questions and will keep it short. I am looking to apply for a mortgage. I was in prison for 5 years starting in 2019 (fraud case- nothing violent or weird) I haven’t had tax returns from a W2 job since 2017. I started a new W2 job in early December 2024 that should give me enough income for the property I want. How can I get approved? Everyone I talk to doubles down on needing a 2 year work history. If you have time to help, I really appreciate it.
Love to hear from you! And thank you for the permission to share here, since your question is a great one that covers a lot of challenges that face people when they are applying for a loan, even if the circumstances are different. So, dear readers, let’s work through this one. I love to work through tricky scenarios to help people when other lenders have said no, because frequently, there is a very approvable loan somewhere in there, but the originator needs to know how to find it.
First Question: Did you work in prison? Believe it or not, that counts if we can document it. (Yes, I worked from July 2022 until December 2023)
Excellent, we just cut that job gap down, provided we can document this employment with a verification from the administrator at the prison. That might not be helpful to most people, but it touches on an important point: ALL JOBS COUNT. Often, I have an application that lists a big gap and once we talk more, it’s not really a gap. So should you find yourself in the situation of hearing your loan can’t be approved due to an employment gap, double check! Did you work part time? Did you have some self employment? If we can document that employment, it counts for the purposes of documenting your work history.
Next: A common misconception is that the 2 year work history means you have to be on your current job for 2 years. Not true- we just need 2 total years, so in the case of our friend, who started his current job in December and has 3 months on that job, we will need to document his prior 1 year and 9 months of work history, whenever that occurred. Since his prison job did not cover a long enough time period, we would document that along with his prior job from before he went to prison.
Boom. “No loan without a 2 year history” - handled. Now that we have 2 years of total work history, my job as the originator is to make a case for the stability of income. With long employment gaps, individual loan programs will have different rules for when the new income can be considered stable. Conventional loans go by the computer underwriting software, and FHA loans require 6 months back at work after a gap of 6 months or more. Our friend does not plan to purchase until June, so he will have the required 6 months back at work by the time he is ready to move forward.
I was able to give him some pointers on how to increase his credit score during that time period and other tips to avoid the underwriting issues that can come up in these situations- ensuring that his hours at his job are completely stable, making sure any judgements associated with his restitution are paid off, and reaching out early for insurance since felony convictions can impact available options there.
I sometimes struggle to explain my value to someone who believes they have a simple situation that doesn’t require “hand holding” - that might be true, but unless you are also a loan originator or underwriter, you might not know about what the skeletons in the closet even look like. Our friend was concerned he needed 2 years back at work and that was the biggest obstacle. In reality, that was minor, and my experience is that the problems that could prevent him from buying a home are ones he didn’t even know about (judgements on title search, variable hours after returning to work) - You don’t have to pay more to work with an expert, and frequently you’ll pay less, but a great originator knows the rules and how to help you get to the finish line.
