This Article Is About Verification Of Employment Before Closing Mortgage Guidelines
Verification Of Employment is how lenders verify the borrower is employed with a particular company and the official wages they make.
- Verification of employment, often referred to as VOE, is done during the mortgage process
- There are two types of VOEs. Written VOEs and Verbal VOE
- The lender contacts the borrower’s employer and verifies the employment and payroll information of the borrower
- Most employers have an HR department
- The HR department is the department that will do verification of employment
- There are instances where a borrower’s employment and/or payroll information can be confusing due to one or more reasons where the loan officer should get a VOE prior to issuing a pre-approval letter
- For example, the borrower’s overtime, bonus, part-time, or other income is confusing to the loan officer, then the loan officer and/or mortgage processor should get a verification of employment prior to issuing a pre-approval letter
The verification of employment will itemize the borrower’s payroll including overtime and/or other incomes as well as the breakdown on how much they made in the past two years.
The Importance Of Qualified Income And Verification Of Employment
Days of stated income and no income verification are long over to qualify for a mortgage.
- Borrowers can have prior bad credit
- If they have documented income, they can qualify for a mortgage loan
- If home buyers have great credit but no documented income, they will not qualify for a home loan
- Documented income is the most important factor in qualifying for a mortgage
- Lenders want to be assured borrowers have the right amount of income
- This is so they are able to afford the new proposed monthly housing payment which is referred to as PITI
- Lenders want to make sure new homeowners can afford minimum debt obligations without stress
- Mortgage underwriters also need to be assured that the income is likely to continue for the next three years or more
- Job stability is key
- Verification of Employment will be done not just with the current employer but also with past employers as well to document they have a two-year employment history
In this article, we will cover the Verification Of Employment and how it works during the mortgage process.
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.
The following income can be used if borrowers had a two-year past history:
- Part-time income
- Overtime income
- Bonus income can be used as long as there is a two-year history of part-time income
- Overtime income and bonus income can be used if the likelihood to continue for the next three years is promising
Verification of employment is required where the borrower’s employer needs to confirm.
Gaps In Employment And Mortgage Loan
Mortgage Borrowers do not have to be employed with the same company for the past two years to qualify for a mortgage. Gaps in employment are allowed.
Here is how employment gaps of six months or fewer works:
- If the borrower has been unemployed for six months or less
- has a new full-time job
- then the new employment income will be used
- the lender will require the borrower to provide 30 days of paycheck stubs
- provide lender offer letter of employment
Written verification of employment during the mortgage process will be required.
Unemployed Greater Than Six Or More Months
If the borrower has been unemployed for six or more months:
- 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 Or Other Income
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 15% if the recipient gets a net check and not taxed
- 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 Will Affect The Verification Of Employment
Homebuyers planning on buying a home and give notice to an employer they are quitting job, this can present a major issue, and may not qualify for a mortgage loan.
- There are many instances where an employee gives an extended prior notice to his or her employer
- They often give notice they are quitting in good faith
- The employee does this 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
- When a mortgage lender requests a written verification of employment from the borrower’s employer, one of the questions that are 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 and/or retiring in 3 to 6 months or later, then the Human Resources Manager will be honest
HR representative completing the written verification of employment will notify the employee’s likelihood of continued employment is not likely. This is because the employee already has turned in his or her notice of retiring and/or notice to resign.
Reasons Why Employees Quit And How It Affects Verification Of Employment
There are numerous reasons why an employee quits their W-2 job.
- Having multiple jobs in the past two years is no problem
- 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 borrowers need to wait two years as a 1099 wage earner to qualify for a mortgage
- 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 paycheck stub is required to qualify and get a mortgage
- Two-year seasoning is not required
If a loan officer is not sure of the exact income to be used as qualified income, they should do a verification of employment before processing the mortgage loan file. This holds especially true for borrowers with irregular and/or other income such as bonus income, overtime income, and other potential qualified income.