This blog will discuss qualifying for FHA loans after unemployment with gaps in employment mortgage guidelines. Homebuyers can now qualify for FHA loans after unemployment and gaps in employment. Many people are under the assumption you need two years of work experience on the same job without any employment gaps. Mike Gracz of Gustan Cho Associates explains the guidelines for getting FHA loans after unemployment:
HUD does not require continuous employment for the past two years to qualify for FHA loans. You can qualify and get pre-approved for an FHA loan with periods of unemployment and gaps in employment in the past two years.
HUD, the parent of FHA, sets the agency mortgage guidelines on FHA loans. Per HUD Agency Guidelines, borrowers can have gaps in employment in the past two years and qualify for a mortgage. The following sections will cover FHA loans after unemployment with employment gaps.
How Many Jobs Can You Have In The Past Two Years To Get an FHA Loan?
There are no limits on how many jobs you can have in the past two years. The salary of the newest full-time job will be used as the qualifying income. If a borrower had a gap in employment of six months or less, there is no waiting period on the new job to qualify for an FHA loan. John Strange of GCA Mortgage Group explains how long after starting a new job you can qualify for FHA loans:
Most lenders will require 30 days of paycheck stubs for the borrower to be able to close on their loan. The employer will require a written letter of employment and employment verification.
If the borrower had a gap of employment greater than six months, the borrower needs to wait six months on his new full-time job for them to qualify for a mortgage. Borrowers can have gaps in employment in the past two years, change careers to a different field, and qualify for a mortgage.
Qualifying For an FHA Loans After Unemployment With Employment Gaps
Many homebuyers assume that Borrowers cannot qualify for FHA loans after unemployment unless they have been in their current jobs for two years. This is not the case under HUD 4000.1 FHA Guidelines. Alex Carlucci of GCA Mortgage Group explains how you can qualify for FHA loans after unemployment with employment gaps:
If you are unemployed for less than six months, you can qualify for an FHA loan 30 days after starting your new job. You need to show two pay check periods which is usually 30 days of pay check stubs. If you have been unemployed longer than six months, you have to wait six months on your new job to qualify.
Borrowers can qualify for FHA loans after unemployment and gaps in employment without being at their current jobs for two straight years. FHA guidelines on gaps in employment are specific. HUD does not require two continuous years of employment.
How Long Do You Have To Be Employed To Get an FHA Loan?
HUD requires two-year employment history. Gaps in employment in the past two years are allowed. I get asked this question several times a week by homebuyers who need to qualify for a mortgage. Angie Torres of GCA Mortgage Group explains the difference between employment history versus employment gaps:
HUD requires a two-year employment history which means a comprehensive job history. Employment history differs from employment gaps. You can have gaps in employment and do not need continuous employment history in the past two years.
Lenders require two years of tax returns and two years of employment history. How about cases where a mortgage loan borrower has been laid off during the past two years? Fannie Mae and Freddie Mac have the same guidelines on gaps in employment on conventional loans as HUD Agency Guidelines.
Can I Get FHA Loans After Unemployment If I Changed Jobs To a Different Field?
HUD and other mortgage agencies normally prefer borrowers to be in the same field if they change. However, that is not required. There are many cases where people change jobs to a different field. Dale Elenteny explains how to qualify for an FHA loan after starting a new job in a different field:
Each lender can have higher lending requirements higher than HUD’s minimum agency guidelines on FHA loan called lender overlays.. Lenders can refuse to lend due to their lender overlays. Lenders can require borrowers to have the same job for the past two years as part of their overlays.
For example, we have many teachers, police officers, firefighters, and other public service workers who retire and change fields to the private sector in a different field.
Can I Have Employment Gaps In The Past Two Years To Get an FHA Loan?
You can have gaps in employment in the past two years and qualify for conventional loans. As with FHA loans, if the borrower has been unemployed for six or more months, the borrower needs to be on a new job for six or more months.
You can have multiple jobs in the past two years and qualify for an FHA loan. You do not need to be on the same job for the past two years continuously. However, you do need a full-time salary or hourly job to qualify for an FHA loan.
If the employment gap is less than six months, there is no waiting period after getting a new job on FHA, VA, USDA, and conventional loans. FHA loans require that you be in the job for 30 days. 30 days of paycheck stubs are required.
FHA Loans After Unemployment of More Than 6 Months
If a borrower has been laid off for less than six months, the borrower will qualify without any problems. The borrower can be laid off for no more than six months and start a job with another company.
Lenders can have higher lending requirements above and beyond the minimum agency mortgage guidelines of HUD, VA, USDA, Fannie Mae, and Freddie Mac.
The borrower will have no problem qualifying for a mortgage loan. The borrower can even be in a different line of work. All that is needed is 30 days of paycheck stubs from their new employer before closing on the mortgage.
FHA Loans After Unemployment With Multiple In The Past Two Years?
This section will cover a case scenario on how a borrower can qualify for an FHA loan after unemployment with multiple jobs and employment gaps over the past two years. For example, here is a case scenario:
- If the borrower was a school teacher for over 20 years
- Got laid off six months or less
- I just got a job as an automobile mechanic
- The borrower can still qualify for a mortgage loan
- The new pay as the auto mechanic will be used as the new income
- An offer letter of employment is normally required
They can still qualify for a mortgage despite a gap in their employment history in the past two years.
What Is an Overlay From Lenders on a Home Loan?
Lenders must have their borrowers meet the minimum agency mortgage guidelines of FHA, VA, USDA, Fannie Mae, and Freddie Mac. All agency guidelines state borrowers can qualify for a mortgage with gaps in employment in the past two years. Alex Carlucci of GCA Mortgage Group talks about lender overlays:
Many homebuyers assume the FHA loan guidelines from Bank A is the same as the FHA loan requirement from Lender B. This is not the case. All lenders need to meet the minimum HUD agency guidelines on FHA loans.
Each mortgage lender can have their lending requirements higher than the minimum agency guidelines called lender overlays. Most lenders will impose lender overlays. It is up to the lender to the kinds of overlays they want to impose on their borrowers.
Different Mortgage Lenders Have Different Requirements?
Most lenders have lender overlays on employment gaps. They require borrowers to have zero employment gaps in the past two years to qualify with them. John Strange explains how not all mortgage lenders have the same lending requirements:
It is important borrowers understand not all lenders have the same mortgage lending requirements on government and conventional loans. One lender may require a 620 credit score on an FHA loan while another requires a 580 FICO.
This holds true even though FHA, VA, USDA, Fannie Mae, and Freddie Mac allow employment gaps. This is called lender overlays on gaps of employment by lenders. Gustan Cho Associates has no lender overlays on government and conventional loans.
Case Scenario on Getting an FHA Loan After Extended Unemployment
For cases where the mortgage loan borrower has been unemployed for six or more months, mortgage lenders want to see a six-month continuous job history before qualifying them for a mortgage home loan. Here is a case scenario:
- So if the school teacher has been unemployed for one year
- The borrower just got a job as an automobile mechanic recently
- He or she must work on their current job for six months before they would qualify for a mortgage loan
If you have any questions, have been previously unemployed, just started a new job, and want to see if you qualify for a mortgage, please get in touch with us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. Our mortgage professionals can review options and work together to get a mortgage after unemployment. We also have access to NON-QM Loans and alternative financing solutions like bank statement mortgage loans.
Related> Qualifying for a mortgage with employment gaps
This article on FHA loans after unemployment was updated on April 18th, 2023..
April 18, 2023 - 6 min read