Employment In Mortgage Approval Process

Verification Of Employment

Gustan Cho Associates

Days of stated income and no income verification are long over to qualify for a mortgage.  You can have prior bad credit but if you have documented income, you can qualify for a mortgage loan.  If you have outstanding credit but no documented income, you cannot get a mortgage loan.  Documented income is the most important factor in qualifying for a mortgage loan.  Mortgage lenders want to be assured that you have the right amount of income so you are able to afford your proposed mortgage loan monthly payment and want to make sure that you can afford your overall minimum debt obligations.  Mortgage loan underwriters also need to be assured that the income you are making is likely to continue for the next three years or more and that your current job is stable.  Verification of Employment will be done not just with your current employer but also with past employers as well to document that you have a two year employment history.

How Do Mortgage Underwriters View Income And Types Of Income?

There are strict income guidelines implemented by both HUD and Fannie Mae that mortgage underwriters need to adhere to.  Part-time income, overtime income, bonus income can be used as long as the borrower has a two year history of part-time income, overtime income, and bonus income and that income is likely to continue for the next three years.  A verification of employment is required where the borrower’s employer need to confirm.

Gaps In Employment And Mortgage Loan

Gaps in employment is allowed.  If the borrower has been unemployed for six months or less and has a new full time job, then the new employment income will be used and the mortgage lender will require that the borrower to provide 30 days of pay check stubs and a written verification of employment.  If the borrower has been unemployed for six or more months and found a new full time job, the borrower needs to be on his or her new full time job for at least six months in order to qualify for a residential mortgage loan.

Social security income, disability income, and pension income can be used as documented income.  Social security income, disability income, and pension income can be grossed up by 25% if the recipient gets a net check.  Again, any income source needs to continue for the next three years.

Child support income, alimony income, and royalty income can also be used as documented income if the income is likely to continue for the next three years.

Giving Notice To Your Employer That You Are Quitting

If you are planning on buying a home and give notice to your employer that you are quitting your job, this can present a major issue and you may not qualify for a mortgage loan.  There are many instances where an employee gives an extended prior notice to his or her employer that they are quitting in good faith so the employer has ample time to find a replacement.  Unfortunately, this good faith effort on the part of the employee will kill his or her chances of getting a mortgage loan.  When a mortgage lender requests a written verification of employment from the borrower’s employer, one of the questions that is asked is whether the employee’s likelihood of employment will continue for the next three years.  If the employee turned in his or her resignation that they will be resigning in 3 to 6 months or later, than the Human Resources Manager completing the written verification of employment will check no and that the employee’s likelihood of continued employment is not likely because the employee already has turned in his or her notice.

Reasons Why Employees Quit

There are numerous reasons why an employee quits their W-2 job.  Having multiple jobs in the past two years is no problem and most mortgage lenders will not take this against the mortgage borrower.  However, if a W-2 employee goes from a W-2 job to another W-2 job, no problem.  However, if the employee goes from a W-2 wage earner status to a 1099 wage earner job, then the mortgage loan borrower needs to wait two years as a 1099 wage earner to qualify for a mortgage loan.  On the flip side, if a 1099 wage earner quits their 1099 wage earner job to a W-2 wage earner job, then only 30 days of pay check stub is required to qualify and get a mortgage loan approval.

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The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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