This blog concerns qualifying for a mortgage and getting approved with employment gaps in the past two years. Many borrowers are told by lenders they can only qualify for a mortgage if they have been on the same job for the past two years. You do not need to be employed in the same job for the past two years to qualify for mortgage loans. Homebuyers need a comprehensive two-year work history. You do not need a two-year consecutive work history on the same job. There is a difference.
A frequently asked question is whether I qualify for a mortgage if I had some gaps in employment and multiple jobs in the past two years. The answer is YES, you CAN. As long as you have not had a gap in employment for longer than six months, you will qualify for a mortgage if you have a full-time job. This holds even with gaps in employment.
You will qualify for a mortgage loan with Gustan Cho Associates, with gaps in employment in the past two years. You do NOT need to continuously be employed for the past two years to qualify for a mortgage. HUD, VA, USDA, Fannie Mae, and Freddie Mac want a two-year employment history. Agency guidelines DO NOT require continuous employment in the past two years. The following paragraphs will discuss qualifying for a mortgage with employment gaps in the past two years.
Can I Get a Mortgage With Employment Gaps?
Borrowers can qualify for a mortgage with employment gaps in the past two years. Employment gaps in the past two years are allowed. You can have multiple jobs and qualify for a mortgage. Mortgage underwriters may not like borrowers seeing job hop often, but that does not deter you from meeting the agency mortgage guidelines.
Mortgage underwriters may downgrade borrowers from an automated underwriting approved status to a manual underwrite using underwriting discretion due to gaps in employment or having multiple jobs in the past two years. If you are told you are getting downgraded from AUS approved to manual underwrite, you will need to transfer your file to other lender with no lender overlays. Gustan Cho Associates has no overlays on government and conventional loans.
Gaps in employment in the past two years will not deter you from getting a mortgage loan approval. Then why are borrowers denied a mortgage loan because they were not employed in the same job for the past two years? It is called lender overlays. We will cover what lender overlays in employment gaps in the next paragraphs.
What Are Overlays on Employment Gaps By Lenders?
Most lenders will have lender overlays in employment gaps in the past two years. HUD,VA, USDA, Fannie Mae, and Freddie Mac all have uniform agency mortgage guidelines on employment gaps. Borrowers can have gaps in employment in the past two years and qualify for a mortgage. Even though the agency mortgage guidelines allow for gaps in employment in the past two years, the individual mortgage company may require the borrower to qualify with their company. The borrower cannot have employment gaps.
One important fact many borrowers do not realize is if you had gap in employment for longer than six months and return back to work to the same job, there is no waiting period after returning to work to qualify for a mortgage.
Lender overlays are when an individual mortgage lender has higher lending standards than the minimum agency guidelines of HUD, VA, USDA, Fannie Mae, and Freddie. All government and conforming agency guidelines have allowed employment gaps in the past two years. As long as the borrower’s employment gap is not longer than six months, there is no waiting period on their new job, except they need to get a paycheck stub before they close. If the borrower has an employment gap longer than six months, the borrower must be in their new job for six months before they can qualify.
What Is an Acceptable Employment Gap For a Mortgage Approval?
Can You Buy a House With Gaps in Employment?Another frequently asked question at Gustan Cho Associates is can you buy a house with gaps in employment? Of course, you can. You can have gaps in employment for less than six months and qualify for a mortgage all day. If you have a gap in employment for over six months, you must be in your current job for six months.
A person can be off the workforce for the past ten years and get a full-time job and qualify for a mortgage after being in the new full-time job for six months. The borrower just need to list the two years of job experience they had ten years ago before they did not work for the ten years.
However, a lender may require employment gaps is not allowed, and the mortgage loan applicant needs to be on the same job for the past two years. If you have had employment gaps in the past two years and a lender says you do not qualify, contact us at Gustan Cho Associates. Gustan Cho Associates is a lender licensed in 48 states, including Washington DC, Puerto Rico, and the U.S. Virgin Islands, with no lender overlays on government and conventional loans.
Can You Get Declined For a Mortgage Due To Employment Gaps in The Past Two Years?
Yes, you can get declined for a mortgage due to employment gaps in the past two years by a lender with overlays. Even though the agency mortgage guidelines state you can qualify for a mortgage with gaps in employment in the past two years, the lender can have their lending requirements. Felix Nicholas, III of Gustan Cho Associates explains lenders overlays as follows:
Many mortgage companies have higher lending requirements that are above the agency mortgage guidelines, called lender overlays. Overlays are legal and imposed by individual lenders because they feel the agency guidelines have a too much-layered risk for their standards. Gustan Cho Associates has no lender overlays.
Every lender can have their lending requirements higher than the agency guidelines. These higher lending guidelines by the lender are called overlays. However, just because one lender says NO can’t mean another with no overlays will approve you with employment gaps. Gustan Cho Associates does not have lender overlays in employment gaps in the past two years. Here are the agency mortgage guidelines for employment gaps:
How Do You Justify Employment Gaps?
One FAQ we often get is how you justify the employment gap. Mortgage underwriters will ask for a letter of explanation for employment gaps. However, do to be alarmed. There is no right or wrong answer for a letter of explanation to mortgage underwriters. Most lenders do want to see a two-year consistent employment history. However, having a consistent two years of employment history is not a deal killer.
Gustan Cho Associates ignores employment gaps less than six months. Even if you changed careers in the past two years and have more than one employment gap, you will qualify for a mortgage. Mortgage lenders need to use their discretion that the ability for continued employment in the next three years is likely.
I originate and close mortgage loans for borrowers who have gaps in employment all the time. Consistent employment history with the same employer shows job stability for mortgage lenders and any creditor. There are banks and mortgage companies that have lender overlays. They will require that borrowers be in the 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.
Gaps 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, can be a particular mortgage lender overlay. But it is not a mandatory Fannie Mae, Freddie Mac, VA, USDA, or HUD guideline.
Letter of Explanation For Gaps in Employment
If mortgage loan applicants have gaps in employment, mortgage underwriters will need a letter of explanation as to why they have employment gaps. John Strange of Gustan Cho Associates explains how to write a letter of explanations to mortgage underwriters:
A letter of explanation to mortgage underwriters should not be a lengthy blog or have too much information. Just make the letter’s content of explanation short, to the point, and facts.
Mortgage underwriters do not want to see a long letter and will often not have time to read a long letter. A few sentences in the letter of explanation will be more than sufficient. Again, there is no issue with qualifying for a mortgage loan for those who were consistently employed for two years with more than one job. However, here is how gaps in employment work to qualify for mortgage loans.
Mortgage Lenders That Accept Mortgage With Employment Gaps
If a mortgage underwriter keeps on giving you a hard time because of your gap in employment, please get in touch with us at Gustan Cho Associates. By a hard time if the underwriter keeps giving you new conditions and conditions after you provided the letter of explanation, it means the underwriter does not want to sign off on the mortgage loan.
Mortgage underwriters will ask for a letter of explanation for employment gaps. This is totally routine and normal. Most underwriters will just want a letter of explanation and file the LOX away in the file. Other underwriters will analyze and dig into the gap in employment and scrutinize the new job and look for a way to deny the loan.
If the borrower had six or more months in job gaps, they must 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, they could 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, which turns into a full-time job.
Importance of Income Stability For The Next Three Years
Lenders’ main concern is that the mortgage loan borrower has income stability when they apply for a mortgage. Lenders want to see borrowers have a stable income and can repay their mortgage.
The ability to repay the new mortgage is what all mortgage underwriters need to determine. Things they look out for is declining income, and a written verification of employment. Mortgage underwriters want to feel confident the borrower has the ability to repay for the next three years.
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 that the borrower’s employment and income will likely continue for the next three years.
Does HUD 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.
Homebuyers do not have to worry about having extended gaps in employment to qualify and get pre-approved for a mortgage. Borrowers are eligible to qualify for a mortgage with an extended gap in employment as long as they have been in the new job for six months.
Many borrowers feel they do not qualify for a mortgage loan because they have extended employment gaps. Or because they had short-term jobs or job hopped.
Waiting Period To Get Mortgage With Extended Employment Gaps
The gap in employment waiting period guidelines are as follows: There is no waiting period with a gap in employment for less than six months. There is a six-month waiting period for starting a new job with a gap in employment longer than six months. If there is an employment gap over six months and the person goes back to work full-time in the same job, there is no waiting period requirement on the job they went back to.
As long as the gap in employment is less than six months, there is not waiting period on the new job. If the employment gap was longer than six months, then there is a six month waiting period at the new job. 1099 wage earners need to wait two years.
Suppose borrowers can show six months of full-time continuous employment history and get employment verification from the employer that the likelihood of continuous full-time employment is promising. In that case, borrowers will qualify for a mortgage loan. We 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. Gaps in employment longer than a month require a letter of explanation, as mentioned earlier. Dale Elenteny of Gustan Cho Associates explains how lenders analyze employment gaps:
If employment gaps were caused by full-time schooling, then transcripts need to be provided to the mortgage underwriter. In most instances, proving continued employment likeliness is not an issue unless the industry goes downhill.
The probability of continued full-time employment is mortgage lenders’ most important concern. The past employment history is used as an indicator of continued full-time employment.
Employment and Changes in Employment
HUD also recommends that mortgage underwriters favor mortgage loan applicants who often change jobs within the same employment field due to income and benefit considerations such as job promotions or advancement in their fields. The bottom line is that HUD encourages job hoppers regarding FHA mortgage loan qualifying purposes.
Employment gaps are not always a bad thing. Sometimes, women need to take maternity leave and take a break from work. There are instances where people need to take time off to go to school for additional training to get more knowledge.
An example of how job changes become a compensating factor is when a person changes jobs for better opportunities. For example, let’s take an actual case scenario at Gustan Cho Associates. A person joined the U.S. Army at 18 years old. After serving four years as a Military Policeman in the Army, he became a campus security officer at Harper College in Palatine, Illinois. After working at Harper College as a Campus Security Guard, he was hired at a local police department as a dispatcher. After a few years, the person became certified as a Chicago Police Officer. Here is a case of changing jobs multiple times, and between changing jobs, there were job gaps. However, these people changed jobs to further their careers, which is a compensating factor.
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.
Gustan Cho Associates has no lender overlays on gap in employment. Borrowers with extended employment gaps are eligible for a mortgage. We have no overlays on government and conventional loans. Gustan Cho Associates also has dozens of no-income verification mortgage loan programs available.
For 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 conventional loans can contact us at Gustan Cho Associates. The team at Gustan Cho Associates is available seven days a week, evenings, weekends, and holidays.
April 17, 2023 - 11 min read