Have you ever wondered how your employment history will affect your ability to buy a home? Many factors are considered when you apply for a home loan. Employment history is a big one, here’s what you need to know
Can I Get a Mortgage Without a 2-Year Work History?
Generally speaking, most lenders want to see that you have 2 full years of employment history when applying for a home loan. This is done by using year to date pay stubs and W2’s you have provided to verify your employment and income history.
Two years of employment in the same industry, with no gaps is ideal and makes for a stronger loan application. Don’t worry though! If you don’t have 2 years of employment history it’s not impossible to buy a home, we help people like you buy homes everyday!
Why do lenders want a two-year work history?
Let’s face it, houses are expensive. Lenders loan out large amounts of money and want to do everything they can to minimize the risk of a borrower defaulting on the loan. Stable income as well as job security are two important factors that show your ability to pay your mortgage in the future.
Fannie Mae and Freddie Mac have made the 2 year employment history a requirement one has to meet to qualify for a home loan. Lender’s are required to follow these guidelines for all qualified mortgages.
Can I get a mortgage without a two-year work history?
If you don’t have a two-year employment history you may be asked to provide additional documentation during the application process. One example is you may be asked to provide verification that you have paid your rent on time for the past 12 months. You will also need to provide pay stubs for your current employer.
If you are a recent graduate from a university, or technical school, congratulations! Your time in school can be used in lieu of your employment history. You will be asked to provide a transcript as documentation of your time in school.
What if I have gaps in my employment?
According to a 2019 survey conducted by Monster.com an estimated 59% of Americans have experienced unemployment or another type of gap in employment. After the pandemic that number has likely increased.
If you have a gap in your employment a few things will be looked at:
- How long ago was the gap? For example, if the gap was a year and a half ago and you have been employed since then it will not raise as many red flags as a more recent gap.
- Are you employed now? For how long? Verification of employment and wages will need to be provided.
- The length of the gap
Some acceptable gaps include:
- You were laid off and it took a little while to find another job.
- You suffered an illness or death in the family.
- Had a baby.
- Pursued higher education
Whatever the reason, you will be asked to provide a detailed written explanation of the circumstances of the gap. Any documentation you can provide to support this will help the underwriter see the full picture of what happened.
The General Rule
- If your employment gap was six months or less you should still qualify for most home loan programs as long as you are currently employed and can provide documentation for 30 days of income.
- Borrowers with a gap longer than six months must be employed for six months before applying for a mortgage.
Can I get a mortgage if I change jobs during the process?
If you have already started the process of applying for a mortgage, changing jobs may complicate things. Whether you still qualify or not will depend on a number of factors.
How will the change affect your income?
If you receive a promotion or accept a different position in the same industry making the same hourly rate or salary as before, the impact may be minimal.
If you leave a salaried or hourly position and take a job that is commission based you might as well kiss the new home goodbye. Lenders like to see income that is stable and predictable.
By changing to this type of pay structure, your past income history can no longer be used to predict future earnings.
Is your new job in the same industry?
Let’s say you have been a mechanic for the past ten years and decide to change your career and become a dog groomer. This type of career move may pose a red flag to the lender and will affect loan approval.
Again, lenders like stable and predictable income. A big career change leaves them no possible indicator of what your income will be in the future.
Let your lender know right away if you are considering making a move!
Your loan officer will be able to look at the big picture and tell you all the details on how things will change if you switch jobs and if your application process will be affected.
What if I have changed jobs several times in two years?
The frequency of job changes will be an area of interest to the lender. You may be asked to provide the reasons for your employment changes. Employment changes that are a result of professional growth will often be evident by changes in title and/or pay. These types of changes are not considered negatively by most lenders.
Frequent job changes that do not reflect professional growth and show stagnation or decline in pay may be considered a red flag by lenders. One of the main aspects of mortgage approval is your ability to pay back the loan.
Several job changes within 2 years that do not suggest professional growth or improvement may cause lenders to question the stability of your income.
How to get a mortgage with a new job
Recent job changes within an industry that you have been in for at least two years or more should not negatively impact your application process unless the pay is significantly lower or you are switching to a commission based pay structure. Be prepared to provide pay stubs reflecting income from the past 30 days.
How to get a mortgage with a part-time job
In order to qualify for a mortgage using income from a part-time job, you must work the same job for at least two years.
You will provide documentation such as W2’s and pay stubs showing year to date income. Your income will be averaged over that two year period, which will become your qualifying income.
Some borrowers may have a second full time job. The two year rule applies to this circumstance as well.
Positive Compensating Factors Help
Lender’s consider the big picture. While you may have the ideal employment history, you may have compensating factors that show strength in other important areas.
- Significant Financial Reserves
- Large Down Payment
- High Credit Score
- Low Debt to Income Ratio
Can I get a mortgage if I don’t have a job?
Most lenders are unlikely to approve a mortgage where the applicant is unemployed. There are exceptions for people who are unemployed but receive a permanent fixed income. Some examples are
- Social security
- Disability income
Social Security/Retirement/Disability Income
If you are on a fixed income, you may still qualify for a home mortgage. The application process is the same as an employed borrower.
You will still have to have:
- a down payment
- documentation of the income you receive
- acceptable credit score,
- a debt to income ratio that falls within an acceptable range for the loan program
One thing to remember is that the benefits must be guaranteed to continue for at least three years after the origination of the loan.
For example, if you have a child who receives social security income due to the loss of a parent, you may only include that income to qualify for a home if the child is younger than 15 years old.
For children above that age, benefits will not be able to be counted because they will not continue for the required time frame.
If you are on a fixed income and plan on buying a home, it is important to keep your other debts low.
Doing this helps ensure that you will be able to keep your debt to income ratio in the required range.
If you have questions about how to do this or need help calculating your debt to income ratio, talk to an expert.
Assets and Income Loan
While not the norm. Untraditional lending programs are available for those who want to utilize their liquidated assets to purchase a home. An example of one of these programs is an asset depletion loan.
In an asset depletion loan, your assets are divided up and used in place of your monthly income. For example, if you had 1 million dollars in liquid assets, you would have a qualifying income of $11,904 over the life of a 84 month mortgage.
These loans do come at a cost as they put the lender at a much higher risk. The down payment and interest rates are usually much higher than traditional mortgage lenders.
So Don’t Fret…
If you don’t have 2 years of consistent employment history, don’t fret. Though employment history is an important part of the application process there are several factors that will be considered when you apply for a mortgage.
If you’re not sure how your employment history will affect your chances of qualifying for a home loan, reach out to one of our loan experts. We are here to help!