The Best Mortgages for Travel Nurses
Mortgage lenders are a conservative bunch. Banks avoid mortgagees with the trimmings of a high-risk borrower. When appraising potential borrowers, they defer to logic, order, safety, security, and predictability.
Unfortunately, nurses don't fit into this category. Nursing isn't a cushy 9 to 5 job with the weekend off or predictable income. Night differentials, overtime, variable pay, and employment gaps define the nursing profession. And it gets worse if you're a traveling nurse because the paycheck includes taxable and non-taxable income.
Such nuances make it challenging to travel nurses to qualify for a home loan with attractive terms, if at all. Dig in as we explore credible ways to overcome the challenges unique to travel nurses and secure mortgage approval.
Securing a Mortgage as a Staff Nurse
Staff nurses have it good by earning extra money each month. You can and should leverage this extra pay to secure favorable mortgage terms. The overtime, extra shifts, and shift differentials may lead to a reasonable income bump.
The Nursing Paycheck
Your paycheck is broken into the base and the extra pay, including overtime and shift differentials. With careful planning, you can make every cent count when qualifying for a mortgage.
Travel Nurse Base Pay
When applying for a mortgage, lenders use your base nursing pay as the primary consideration. Some lenders require a two-year employment history at the current salary to approve a mortgage. Others are more flexible and may consider nursing school part of your work history.
Since nursing school takes more than two years, new nursing grads can qualify for a mortgage from day one. Securing an employer's offer letter with your base pay and hours can get you a mortgage from day one of your nursing career.
According to ZipRecruiter, an entry-level registered nurse makes about $30/hour or $61,728 annually. A starting nurse can qualify for a $200,000 home loan from the FHA at a 3.75% interest rate. But only if you raise a 3.5% down payment and carry less than $400 in other monthly expenses.
Overtime, Shift Differentials, and Other Bonuses
You can secure attractive mortgage terms by using the extra pay during your mortgage application. Luckily, flexible lenders classify a nurse's extra pay as variable income. You'll need to provide 12 to 24 months of the additional revenue to count towards qualifying income.
Consider an example where you've regularly worked night shifts for about two years with a night differential of $5/hour. You've also picked some overtime in the same period.
Lenders would calculate your income as follows:
Base pay = $4,680/mo (($30 x 36 hours x 52 weeks ÷ 12 months
Night differential = $108/mo (520 hours over two years x $5 ÷ 24 months
- Overtime = $450/mo (240 hour over two years x $45)/÷ 24 mo
Consequently, a lender would use a $5,238 monthly income to qualify your mortgage. Unsurprisingly, the extra RN pay puts you in good standing with the lender. It'll increase your chances of qualifying for a home loan and snag you excellent terms.
If your circumstances don't fit into this textbook example, you might still come off on top. A 12-month history with this type of income may suffice. But you'll need to supplement it with a letter from your employers attesting that the payments are likely to continue.
Unfortunately, you may not use the extra income to qualify for a mortgage if your extra pay history is less than 12 months. However, a mortgage pre-approval may help pave the way forward. An underwriter will pore through your income documentation and determine the income you can use to apply for a mortgage.
How to Use your full nurse pay to qualify for a mortgage
Keep an immaculate paper trail.
Save all your pay stubs.
Include your W2s for at least two years.
Get a confirmation letter from your employer stating that the overtime and differentials are likely to continue.
Provide your lender with a contact name and number for your HR department.
- Provide the lender with the W2 and final pay stub from your previous employers over the past three years if you've recently changed jobs.
It may seem like overkill, but it's best to err on the side of caution as qualifying for a mortgage is a high-stakes game.
Dealing with Staff RN Employment Gaps
Registered staff nurses frequently change employers for a variety of reasons. It could be taking time off, pursuing better pay, hours, travel, or opting for per diem work. Whatever your reasons, you can ensure these gaps don't mar your qualification chances.
Naturally, your lender will view the time off as the employment gap since they expect a full-two-year work history. Therefore, you should be ready to explain the gaps and provide complete documentation. A letter of explanation can help persuade the lender that you'll have a stable income.
Employment gaps are a significant concern because they make it hard to predict your income. From the example above, lenders use a two-year income history to predict your future income. A lender can easily overlook the three months you took off to become a travel nurse or pick per-diem shifts. However, they'll only approve your application if you have base pay.
That means you can only qualify for a mortgage if you are a staff nurse. Lenders find it troubling to use income from short-term nursing gigs to qualify applicants, preferring to use the more predictable base pay. A rule of thumb is you should have at least two years of being a staff RN before buying a house.
Buying Your First House as a New RN Grad
First of all, congratulations on landing your first nursing job. You've joined one of the most stable professions in the entire world. Having a steady source of income counts a great deal if you wish to purchase a home right out of grad school.
Naturally, you must consider two critical factors to become a successful homeowner as a newly minted RN.
Use your RN base pay to buy a small or older home.
- Use all your RN income to buy a larger, nicer home.
Typically, a lender requires a two-year history of additional income such as shift differential and overtime to qualify as income. Since most lenders count schooling as work history, your nursing base pay is usable from day one. Still, you should factor in your long-term goals when taking out a mortgage to buy a home as a new staff RN.
Easing Lender's Concerns as a Travel Nurse
You're likely to encounter and surmount various obstacles to realize your dream of owning a home. Travel nurses often have a hard time qualifying for a mortgage. Lenders may turn down your application citing unpredictable or unstable income.
Loan officers often don't appreciate the intricacies of working as a travel nurse. If anything, your application may trigger all sorts of red flags. The 13-week contracts peg you as a perennial job hopper or a contract employee. Go against anything that represents a safe borrower. Luckily, you can plead your case and increase your chances of qualifying by:
Writing a letter of explanation - Describe the nature of your job, and cite relevant statistics about pay, job demand, and market projections.
Build a credible history - Lenders gravitate towards 12-24 months of job experience. Building this kind of job history build confidence and offers greater insights into the monthly income.
Include your staff RN experience in job history - Travelling nurses are considered self-employed even with W-2 income and contract pay. Lenders want to see applicants with at least two years of successful employment work in line with their specialization. If you have at least one year of experience as a travel nurse, you can include your previous experience as a staff RN.
Pick W2 assignments from a single agency - If you're new to the traveling nurse scene, pick an agency and have them pay you as a W-2 employee.
- Keep a detailed paper trail - Preserve all your paystubs, contracts, and agency contact information. Lenders may elect to very your employment with the agency, or you may need an employment letter detailing your work history.
Travelling Nurses and Employment Gaps
As a travel nurse, you have the luxury of taking time off when it suits you. You can work for six months to pad your account and then take a 1-3 months break.
The high demand for travel nurses means you can secure a new contract in two weeks or less once your current one ends. But how do you address these gaps in your mortgage application?
What's a gap in employment?
There's no fast rule as to what counts as a gap in employment. To FHA, an employment gap is at least one month. Fannie Mae recommends lenders look for consistent variable income gaps that are longer than usual. If your intervals are longer than expected, you'll need a letter to explain the time away from work.
How can you counteract employment gaps?
Building a 12-month employment history is helpful. A 24-month work history is preferable because it enables lenders to calculate your monthly income accurately even after factoring in the gaps.
Mortgage lenders aren't too familiar with the intricacies of the travel nursing industry. A detailed letter explaining how the sector work may you plead your case. You can request a letter from your agency's HR department or recruiter for bonus points. An official letter printed on a company letterhead carries more weight.
Travel Nurse's Variable Income
The travel nurse industry is dynamic, and the pay varies wildly between locations and contracts. The number on your paycheck may vary depending on employers, season, location, experience, etc. Explaining these variations takes tact and careful documentation.
While lenders understand variable pay and seasonal work, they examine each case on merit. Building a credible work history and providing supporting documentation – offer letters, W2s, and contracts – will help your case. Given a long work history, a lender can average the seasonal and variable pay over time and arrive at an attractive figure.
Taxable Vs. Non-taxable Travel Nurse Income
Travel nurses have the rare benefit of earning taxable and non-taxable income. While your base pay is taxable, your per diems aren't. Per diems are travel, housing, and meal reimbursements while you're on the road. The IRS doesn't classify per diem pay as income or compensation; it goes untaxed.
Some agencies capitalize on this loophole by offering lower base pay and bumping up the per diem pay. While such an approach puts more money in your pocket, it may hurt your mortgage application.
Most lenders don't consider per diem pay while considering your mortgage application. Your travel nurse pay may be lower, reducing the loan amount despite earning a generous income each month.
Per Diem Pay Vs. Mortgage Qualification
Most rule-making parties, including Fannie Mae, Freddie Mac, and the HUD, don't address the per diem pay issues. Lenders have a free hand when dealing with the issue. Some lenders consider per diem pay, while others won't.
Traditionally, mortgage lenders use tax returns to verify your income history. Per diem pay poses a hurdle for many lenders because it doesn't appear on your tax returns. Backing your per diem claims with pay stubs, contracts, and other relevant documents will help you make a strong case.
Taxable Vs. Non-taxable Income
Travel nurses who dream of owning a home should approach this issue carefully. The non-taxable pay may build your savings to let you put down a sizeable down payment. But you need at least two years of high taxable income to qualify for a mortgage.
However, all is not lost if you have a high per diem pay history. Start shopping around for lenders amenable to using per diem pay as qualifying income. Alternatively, consider negotiating a higher base pay and lower per diem pay. The sooner you affect this change, the sooner you can be eligible for a mortgage.
If you're in a hurry to buy a home, consider taking up a staff RN position. The pay structure and a few pay stubs will have you qualify for a home loan in a few short months. Some lenders will even consider the offer letter. Once you close the mortgage, you may resort to being a travel nurse again.
Successfully Buying a Home on Your Travel Nurse Income
Travel nurses have extra legwork when applying for a mortgage, unlike people with a safe 9 to 5 job and predictable income. Here are some time-tested insights for a seamless homeowning journey.
Keep an immaculate paper trail - Save a copy of all your travel nursing contracts, pay stubs, deposit slips, and relevant documents. You'll need the documentation as proof of income and employment history. You can scan and save them online using a cloud service such as Dropbox.
Pick travel nurse assignments with high taxable pay - Most lenders will readily consider your application if you have a high taxable income. You may qualify for a lower loan amount if non-taxed make up much of your paycheck since you'll have a low base pay. It may also restrict your borrowing options to a small group of lenders.
Polish your tax knowledge - Travel nurses receive non-taxable stipends to help with living expenses and accommodation because they travel for work. The IRS doesn't tax such allowances because they're duplicate expenses. Travel nurses require temporary residence while on assignment and in their primary homes. Use IRS Publication 463 to polish your tax knowledge and avoid legal trouble.
- Maintain tax home - Travel nurses must maintain a tax home to be eligible for non-taxable stipends. Typically, maintaining a tax home has three requirements, but travel nurses only need two.
The Best Mortgage for Travel Nurses
The best mortgage for a travel nurse depends on your specific financial situation. Your ability to meet a lender's basic requirements – credit score, income level, debt-to-income ratio, etc. – determines eligibility.
Special Housing Program for Nurses
Unfortunately, there are no government-sponsored programs to help nurses realize their dreams of owning a home. Many organizations claim to help nurses and other professionals buy a home, but only a handful of them are genuine.
Sites such as teachernextdoor.us and usehhaf.org claim to help nurses buy homes, but they often have ulterior motives. Many programs claim to help with closing fees and down payments, but they're not approved to provide such assistance.
Conventional Home Loan for Travel Nurses
Also known as conforming loans, conventional home loans have a high cutoff point. Local and national lenders provide these loans following rules formulated by Freddie Mac and Fannie Mae. You need a credit score of at least 740 to secure good terms, but the cutoff is about 620.
You need at least 3% down to qualify, but anything below 20% triggers private mortgage insurance. Conforming loans are ideal for people with stellar credit scores and a sizeable down payment.
FHA Loans for Travel Nurses
Short for a Federal Housing Administration loan, the federal government backs an FHA loan. They have less stringent requirements and are flexible on employment changes, credit scores, employment gaps, and down payments.
You'll need a 3.5% to 10% home deposit to qualify for an FHA loan, making it a go-to option for travel nurses who can't secure conventional loans.
USDA Loans for Travel Nurses
Offered by the U.S. Department of Agriculture under the USDA Rural Development program, this mortgage program targets rural property owners. It's the most flexible government-backed mortgage program and requires no down payment.
However, USDA loans carry location and income limitations. You can only use the home loan to buy a home in an eligible rural area, and your income can't be 15% over the local median income.
VA Loans for Travel Nurses
If you are a travel nurse with a background in military services, you can opt for a VA loan. The program is backed by the Department of Veteran Affairs and is open to active service members, veterans, and surviving spouses of veterans but has stringent qualifying criteria.
VA loans have no down payments and don't require mortgage insurance, among other favorable terms. These loans have the most lenient terms because they come with a federal government guarantee. If you cannot service your loan, the government will repay a portion of the loan amount.
Owning a Home as a Travel Nurse
Traveling nurses often make enough money to realize their homeowning dreams. However, it would be best if you accounted for the nuances that characterize the traveling nurse career when applying for a mortgage.
Variable income, low base pay, high non-taxable income, and employment gaps may affect your qualifying chances. You may need to explain and document your way the red flags they raise with mortgage lenders to realize your homeownership dreams.
With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.
About Author - Phil Ganz
Phil Ganz has over 20+ years of experience in the residential financing space. With over a billion dollars of funded loans, Phil helps homebuyers configure the perfect mortgage plan. Whether it's your first home, a complex multiple-property purchase, or anything in between, Phil has the experience to help you achieve your goals.