This Article Is About Employment Gaps Mortgage Lending Guidelines On Borrowers
Most lenders do want to see a two-year consistent employment history
- However, having a consistent of two years of employment history is not a deal killer
- I originate and close on mortgage loans for borrowers who have gaps in employment all the time
- Consistent employment history with the same employer shows job stability not for just mortgage lenders but to any creditor
- There are banks and mortgage companies that have lender overlays
- They will require that borrowers be in their same jobs for the past two years
- However, this is not a mortgage guideline
In this article, we will cover qualifying for a mortgage with gaps in employment in the past two years.
Gap In Employment In The Past Two Years
Mortgage Borrowers can have multiple jobs and gaps in jobs in the past two years and still qualify for home loans.
- Having a two year, with employment gaps, may be a particular mortgage lender overlay
- But it is not a mandatory Fannie Mae, Freddie Mac, VA, USDA, or FHA guidelines
Letter Of Explanation For Gaps In Employment
- Again, for those who were consistently employed for two years with more than one job, there is no issue with qualifying for a mortgage loan
- However, here is how gaps in employment work to qualify for mortgage loans
- If the borrower had six or more months in job gaps, then they need to be with a full-time job for at least six months to qualify for a mortgage loan
- If the borrower had gaps in employment for less than six months, then they can qualify for a mortgage with a new full-time job
- The borrower will need a full-time employment offer letter
They will need 30 days of paycheck stubs with the current employer to get clear to close.
Reasons For Gaps In Employment
There are various reasons for gaps in employment:
There are many reasons why people have gaps in employment:
- It can be maternity leave
- It could be personal time off due to divorce or death in the family
- It can be military deployment or being in school full time
Some folks decide to work part-time and that part-time job turned into a full-time job.
Importance Of Income Stability For The Next Three Years
The main concern lenders have is that the mortgage loan borrower has income stability at the time they apply for a mortgage:
- Lenders want to see that borrowers have a stable income and the ability to repay their mortgage
- Mortgage Lenders want to feel confident that borrowers have a solid stable job and income stability for the next several years where the mortgage loan does not go into default
- Past work history is a good indicator of future job stability
Lenders will need to feel confident the borrower’s employment and income are likely to continue for the next three years.
Does FHA Require Two Years Of Employment History?
The Federal Housing Administration does not require two years of continuous employment history. Overall two-year employment history is required on all loan programs. Full-time schooling counts as full-time employment history.
- Many borrowers feel that they do not qualify for a mortgage loan because they have extended employment gaps
- Or because they had short term jobs or job hopped
- As long as borrowers can show six months of full time of continuous employment history and can get a verification of employment from the employer that the likelihood of continuous full-time employment is promising, borrowers will qualify for a mortgage loan
We do need to document two years of employment history but the employment history does not have to be continuous.
Lending Guidelines On Employment History
The following is from the HUD Handbook 4000.1 says about income and employment stability for mortgage loan borrowers:
“To be eligible for a mortgage, FHA does not require a minimum length of time that a borrower must have held a position of employment. However, the lender must verify the borrower’s employment for the most recent two full years…”
Gaps in employment longer than a month do require a letter of explanation as mentioned earlier.
- In the event, if employment gaps were caused by full-time schooling, then transcripts need to be provided to the mortgage underwriter
- The probability of continued full-time employment is the most important concern mortgage lenders have
- The past employment history is used as an indicator of continued full-time employment
Employment And Changes In Employment
HUD also recommends that mortgage loan underwriters should favor mortgage loan applicants who change jobs often within the same employment field due to the following:
- Income and benefit considerations such as job promotions or advancement in their fields
- Bottom line is that HUD encourages job hoppers when it comes to FHA mortgage loan qualifying purposes
Gaps In Employment For Conventional Loans
Conventional mortgage lenders are slightly more strict when it comes to employment gaps.
- Most conventional mortgage lenders do want to see continuous full-time employment
- However, employment gaps are not a deal-breaker
- Any employment gaps under six months are allowed with only the most recent paycheck stub from the new employer
- Any employment gaps of six or more months, the mortgage lender wants to see six or more months in their current job
Borrowers who need to qualify for a mortgage with a direct lender with no overlays on government and/or conventional loans can contact us at Gustan Cho Associates. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.