Employment Gaps Mortgage Lending Guidelines On Borrowers

Employment Gaps Mortgage Lending Guidelines On Borrowers

This BLOG On  Employment Gaps Mortgage Lending Guidelines On Borrowers Was UPDATED On September 7th, 2018

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 employment history is not a deal killer
  • I originate and close on mortgage loans for borrowers who have employment gaps 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 where they will require that borrowers be in their same jobs for the past two years
  • However, this is not a mortgage guideline

Mortgage Borrowers can have multiple jobs and employment gaps 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 Employment Gaps

Letter Of Explanation For Employment Gaps

If mortgage loan applicants have employment gaps, mortgage underwriters will need a letter of explanation as of why they had employment gaps:

  • Again, those who were consistently employed for two years with more than one job, there is no issue with qualifying for mortgage loan
  • However, here is how employment gaps work to qualify for mortgage loans
    • If borrower had six or more months in employment gaps, then they need to be with a full time job for at least six months to qualify for mortgage loan
    • If the borrower had employment gaps for less than six months, then they can qualify for mortgage with new full time job
    • Borrower will need full time employment offer letter
    • They will need 30 days of paycheck stubs with current employer to get clear to close

Reasons For Employment Gaps

Reasons For Employment Gaps

There are various reasons for gaps in employment:

  • There are many reasons why people have employment gaps
    • 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

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 stable income and the ability to repay their mortgage
  • Mortgage Lenders want to feel confident that borrowers has 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

Does FHA Require Two Years Employment History?

Does FHA Require Two Years 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 mortgage loan 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 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 employment history but the employment history does not have to be continuous

Lending Guidelines On Employment History

Lending Guidelines On Employment History

The following is from the United States Housing and Urban Development, 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…”

Employment gaps longer than a month does require a letter of explanation as mentioned earlier.

  • In the event if employment gaps was 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

Employment And Changes In Employment

HUD also recommends that mortgage loan underwriters should favor mortgage loan applicants who changes 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

Employment Gaps For Conventional Loans

Employment Gaps 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 is not a deal breaker
  • Any employment gaps under six months is allowed with only the most recent pay check 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 mortgage with direct lender with no overlays on government and/or conventional loans can contact us at The Gustan Cho Team at Loan Cabin Inc. We are available 7 days a week, evenings, weekends, and holidays.

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