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Employment History for Mortgage Lenders: How Your Job History Affects Your Ability to Get a Home Loan

Patrick Boyaggi

22 Jul 2022

Employment History for Mortgage Lenders

When you apply for a home loan, mortgage lenders want to know about your employment history. They'll want to see that you have a steady income and at least two-year job history.

Your employment history is one of the factors that lenders look at when they're considering your application to qualify for a mortgage. So they'll want to see that you have a steady same job income and a good employment history.

It may be challenging to get a home loan if you've been unemployed for a while or had several jobs in the past few years. As a result, lenders may view you as high-risk and may not approve your loan application.

It's important to have a strong employment history when you're applying for a home loan.

Lenders will require information from you about your current employer (and former, if applicable) in order to determine if you will qualify for a loan. The purpose is to confirm that you are currently employed, that your income is stable and predictable, and that there is a likelihood of continuity.

Employment Requirements to qualify for a mortgage

General Employment Requirements: If you have been with the same job for less than two years, lenders will collect information on previous employers and your line of work to address income trends.

Lenders will require documentation and/or a written explanation in cases where you have a new job but a previous two year employment history (e.g., you were in school previously or took time off to be a homemaker).

General Employment Income Information:

Your lender will require your last two years of W-2s and/or 1099 forms.

If you are self-employed, the lender will require your taxes for the past two years and year-to-date profit and loss statements to qualify for a mortgage.

The income requirements for a mortgage are that you have steady employment history and earn enough money to make the payments. Therefore, the mortgage lender will look at your employment history and income when considering your mortgage application.

It may be difficult to get a mortgage if you've been unemployed for a while or had a work history in the past few years. As a result, lenders may view you as high-risk and may not approve your loan application.

It's important to have a strong employment history when you're applying for a home loan. Having a steady income and good job history will increase your chances of getting approved for a home loan.

Stable and Predictable Income:

The stable and reliable flow of income is a critical consideration in mortgage loan underwriting. To demonstrate the likelihood that a consistent level of income will continue to be received for borrowers with less predictable sources of income, the lender must obtain information about your prior earnings. Examples of less predictable/variable income sources include commissions, bonuses, and overtime pay.

Lenders will require documentation of your income, such as W-2 forms and pay stubs, to verify that you have a steady income. They'll also want to see that your income is predictable and reliable. If you have a history of irregular income or employment, it may be challenging to get a home loan.

Employment Gaps:

An employment gap is any period during the most recent two years where you were not employed full-time for at least 30 days. Lenders will closely scrutinize employment gaps to ensure no break in employment would indicate financial difficulty.

If you have an employment gap on your resume, be prepared to explain it to your lender. They may view you as high-risk if you have a history of employment gaps.

Multiple Jobs:

Lenders will want to see that you have a steady income if you have multiple jobs. They'll also want to confirm that your income is enough to make the payments on the loan. Therefore, lenders may require documentation of your income from each job, such as W-2 forms and pay stubs.

If you're employed at more than one job, it's vital to show that you have a steady income. Lenders will want to see documentation of your earnings from each job. They'll also want to confirm that your overall income is enough to make the payments on the loan.

Variable Income:

All variable income used for qualifying purposes must be reviewed to assess your history of receipt, the frequency of payment, and the trend of the amount of income received. In order to be used for qualifying purposes, the income must have been received for at least one year.

Suppose you have variable income, such as commissions or bonuses. In that case, it's important to show that you have a history of receiving this income. Lenders will want to see documentation of your earnings. They'll also want to confirm that your overall income is enough to make the payments on the loan.

History of Receipt:

Two or more years of receipt of a particular type of variable income are required to use that income to qualify.

Variable income that has been received for 12 to 24 months may be considered adequate income. For example, the lender deems positive factors in your profile to reasonably offset the shorter income history.

A borrower's history of receipt of variable income may be used to offset a lack of recent receipt.

Lenders will want to see that you have a history of receiving variable income. They'll also want to confirm that your overall income is enough to make the payments on the loan.

Self-Employment Income:

Most mortgage lenders0 will want to see that you have a steady income if you're self-employed. They'll also want to confirm that your income is enough to make the payments on the loan. As a result, lenders may require documentation of your income, such as tax and financial statements.

If you're self-employed, it's important to show that you have a steady income. Lenders will want to see documentation of your earnings. They'll also want to confirm that your overall income is enough to make the payments on the loan.

Income from Rental Property:

Lenders will want to see that you have a steady income if you have income from a rental property. They'll also want to confirm that your income is enough to make the payments on the loan. Therefore, lenders may require documentation of your income, such as financial statements.

If you have income from rental property, it's important to show you have a steady income. Lenders will want to see documentation of your earnings. They'll also want to confirm that your overall income is enough to make monthly mortgage payments.

Frequency of Payment

To accurately calculate the monthly income, the lender must determine the frequency of the payment (weekly, biweekly, monthly, quarterly, or annually). Suppose any differences exist between the current period variable pay and the year-to-date variable pay. In that case, the lender must investigate the difference and document the analysis before using the income.

Lenders will want to confirm that your income is enough to make the payments on the loan. They'll also want to confirm that your income is being paid regularly.

The Trend of Income Amount

Suppose there is a decline in the amount of variable income received. In that case, the lender must investigate and document the reasons for the decline before using the income.

If you receive a decline in the variable income, it's important to show that you have a steady income. Lenders will want to see documentation of your earnings. They'll also want to confirm that your overall income is enough to make the payments on the loan.

After your current year's income amount is calculated, it must be compared to prior years' earnings using your W-2s or signed federal income tax returns.

  • The income amount will be averaged if the income trend is stable or increasing.
  • If the trend was declining but has since stabilized and there is no reason to believe that you will not continue to be employed at the current level, the current, lower amount of variable income must be used.
  • If the trend is declining, your income may not be stable. The additional analysis must be conducted to determine if any variable income should be used.

Continuity of Income

A key driver of successful homeownership is the confidence that all income used to qualify the borrower (s) will continue to be received for the foreseeable future. For example, suppose the income does not have a defined expiration date, and the history of receipt of the income is documented. In that case, the lender may conclude that the income is stable, predictable, and likely to continue.

If the income source does have a defined expiration date or is dependent on the depletion of an asset account or other limited benefit, the lender must document the likelihood of continued receipt of the income for at least three years. The analysis must include a review of any renewal options, the past history of renewals (if applicable), and market conditions that may influence the decision to renew.

The lender must determine if the income is stable and predictable. If the income is not stable, the lender may determine your mortgage application may not be qualified.

Overtime Income:

If overtime is included as part of your regular compensation package, it generally can be considered reliable income. Lenders will want to see documentation of your earnings. They'll also want to confirm that your overall income is enough to make the payments on the loan.

If you receive overtime pay, it's essential to show that you have a steady income. Lenders will want to see documentation of your earnings. They'll also want to confirm that your overall income is enough to make the payments on the loan.

Bonus Income:

If you receive bonus income, it's important to show that you have a steady income. Lenders will want to see documentation of your earnings. They'll also want to confirm that your overall income is enough to make the payments on the loan.

Commission Income:

If you receive commission income, it's important to show that you have a steady income. Lenders will want to see documentation of your earnings. They'll also want to confirm that your overall income is enough to make the payments on the loan.

Other Types of Variable Income:

If you receive any other type of variable income, it's important to show that you have a steady income. Lenders will want to see documentation of your earnings. They'll also want to confirm that your overall income is enough to make the payments on the loan.

No matter what type of variable income you receive, it's important to show that you have a steady income. Lenders will want to see documentation of your earnings. They'll also want to confirm that your overall income is enough to make the payments on the loan.

Standards for Employment Documentation

The following are the standards for employment documentation:

Type of Employment Documentation Standard

W-2 Wage Earner The most recent two years' W-2 forms from your employer(s), all pages.

Self-Employed The most recent two years' federal tax returns (1040, 1120, etc.), including all schedules and attachments. You will need to provide a signed extension if you have not yet filed your taxes for the most recent year. 

Other than the most recent two years' federal tax returns (1040, 1120, etc.), including all schedules and attachments. If you have not yet filed your taxes for the most recent year, you will need to provide a signed extension.

General Documentation Requirements

The lender must verify employment income for all borrowers whose income is used to qualify for the mortgage loan. This verification can be provided by the borrower, by the borrower's employer, or in some cases, by a third-party employment verification vendor. The lender must have a reasonable basis for believing that the information provided by the borrower, employer, or third party is true and accurate.

The following are examples of documentation that may be used to verify employment income:

  • Pay stubs covering a period of at least 30 days, including year-to-date information
  • W-2 forms from the most recent two years
  • Federal tax returns from the most recent two years (1040, 1120, etc.), including all schedules and attachments

Letter from employer on company letterhead signed by an authorized representative of the company that includes:

  1. Borrower's name
  2. Borrower's position or title
  3. Confirmation of dates of employment
  4. Current salary or hourly

Employment Documentation To Be Provided:

Paystubs: The oldest of the two required paystubs must be dated no earlier than 30 days before the initial loan application date and include all year-to-date earnings. Additionally, the paystub must include sufficient information to calculate income appropriately; otherwise, additional documentation must be obtained.

W2: IRS W-2 forms must cover the most recent two-year period. The W-2 forms must clearly identify the borrower as the employee. "Most recent" W-2 is the W-2 for the calendar year prior to the current calendar year.

General Paystub and W2 Requirements:

  • Documents must be computer-generated or typed by the borrower's employer(s). Paystubs that the borrower downloads from the Internet are also acceptable.
  • Documents must clearly identify the employer's name and source of information.
  • The documents must clearly identify the borrower as the employee.
  • The information must be complete and legible.
  • The original source of information must be a third party, such as the borrower's human resources department, personnel office, payroll department, company's payroll vendor, or supervisor.

Tax Returns

Personal federal income tax returns must be copies of the original returns, with signatures, that was filed with the IRS. In addition, all supporting schedules must be included. The lender will also obtain applicable transcripts of federal income tax returns. "Most recent" tax return is the last one scheduled to have been filed with the IRS.

Employment Documentation Provided by the Borrower's Employer

If a lender cannot sufficiently document a borrower's income, they will contact the borrower's employer directly using a Request for Verification of Employment (VOE) or a third-party service.

Lenders will need permission from the borrower, usually in the form of disclosure, that authorizes the lender to obtain verifications of employment and income directly from the employer. The VOE must be signed by an authorized company representative on company letterhead.

The VOE must include the borrower's name, the borrower's position or title confirmation of dates of employment, current salary, or hourly rate (for hourly employees, the average number of hours worked per week over the past two years must be provided).

Employment Documentation Provided by a Third-Party Employment Verification VendorIn cases where borrowers are self-employed or work for employers that do not provide verification of employment forms, lenders may use third-party employment verification vendors to verify income. The borrower will need to authorize the lender to obtain this information. The following information must be provided to the third-party vendor:

  • Borrower's name
  • Borrower's social security number
  • Borrower's date of birth
  • Name and address of employer(s)
  • Dates of employment
  • Income information for the most recent two years (or one year if employed less than two years)

The third-party vendor will then contact the employer and verify the information. This process may take a few days. Once the verification is complete, the lender will have the information they need to decide on the loan.

Conclusion:

In order to get a loan, you will need to provide employment documentation. This can include pay stubs, W2 forms, tax returns, and verification of employment from your employer or a third-party vendor. The lender will use this information to determine your income and whether or not you are eligible for the loan.

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