Verification Of Employment And Income

This BLOG On What Is A Written Verification Of Employment And Income Was Written By Gustan Cho NMLS 873293 of CrossCountry Mortgage Inc. NMLS 3029

Employment, income and credit are the most important factors in determining your mortgage loan approval. Between the two, income is probably more important than credit in determining your mortgage approval.  You can have prior bad credit and low credit scores and can qualify for a residential mortgage loan if you have documented steady employment and qualified income, however, you cannot get a mortgage loan approval even if you have perfect credit but no documented employment and income.  The way lenders will do VOE or verification of employment.

  • Written Verification Of Employment And Income
  • Verbal Verification Of Employment And Income

All income needs to be documented and both a written verification of employment and verbal verification of employment is required. Cash income paid by employers is not considered documented qualified income and does not count in the mortgage industry.

Types Of Verification Of Employment

When it comes to getting a mortgage loan approval, the income you have stated on your mortgage loan application needs to be verified by your mortgage lender via a verification of employment.  A verification of employment can be either a verbal verification of employment or a written verification of employment or both. A written verification of employment is done at least once during the mortgage process and a verbal verification of employment is normally done prior to a clear to close. Verbal verification of employment can also be done more than once by lenders to make sure that the borrower is still employed. Here are some facts about a written verification of employment and verbal VOE:

  • A verification of employment is also called a VOE. 
  • Verification of employments is done by the mortgage loan processor of the mortgage company as well as the mortgage loan underwriter by the mortgage lender. 
  • Verification of employment and income require the borrower’s authorization of the mortgage loan applicant and it is normally faxed or mailed to the Human Resources Division of the employer. 
  • Besides a formal verification of employment and income from the employer, mortgage lenders also want to see other forms of employment documents such as two years tax returns, two years W-2s, and 30 days of paycheck stubs and the verification of employment needs to match those documents.

Types Of Verification Of Employment

Verification of employment is done by contacting the Human Resources Department of the employer for W-2 income wage earners. However, not everyone is a W-2 wage earner and those who are self employed or have other forms of income still need their incomes verified by the mortgage lender in order for them to secure a mortgage loan.

Here is the purpose for verification of employment and income:

  • With verification of employment, the lender wants to know how long the borrower was employed and whether the borrower’s likelihood to remain employed is likely for the next three years.
  • Verification of income is to determine how much the borrower makes, and what the borrower will continue to make for the next three years.
  • Overtime income, bonus income, part time income needs a two year seasoning requirements in order to count and the likelihood needs to be likely that it will continue for the next three years if this income will be used as qualified income.

Self Employed Borrowers

Self employed mortgage loan borrowers  need to verify employment and income.

Here is how self employed borrower’s income can be used as qualified income:

  • Two years seasoning and documented per two years tax returns.
  • If the income is similar for the past two years, the adjusted gross income will be averaged.
  • If the income is declining for the past two years, the lower most income will be used.
  • If the most recent year’s self employment income has a significant drop than the prior year, a mortgage underwriter can disqualify the borrower and this borrower will not qualify for a mortgage loan due to the concern of the significant drop in income.
  • A self employed mortgage loan applicant can verify employment and income by having their Certified Public Account provide them with a CPA LETTER in the event of a huge one time write off on their income taxes.
  •  The accountant can certify that you are a self employed income wage earner and state what your income has been the past several years and certify that he has been your accountant of record for the past several years.
  • If your mortgage lender requires more proof to verify your employment besides your CPA Letter stating you own your own business, then you can provide your mortgage lender with a business license issued by your city, county, or state. 
  • Normally, mortgage lenders will require two years of business license to provide and document that you are self-employed.

Purpose Of Verification Of Employment And Income

The main purpose of verification of employment is for mortgage lenders to verify the employment status and income of the mortgage loan applicant and that the employment and income will likely to continue for the next three years.

  • All mortgage lenders will require a verification of employment for all of their mortgage loan applicants.
  • All W-2s and recent pay check stubs are verified with verification of employment and income.
  • However, for those mortgage loan applicants who have inconsistent W-2s from one year to the next and those with irregular hours or declining income, a written verification of employment and income plus a letter of explanation will determine what qualified income the mortgage underwriter will use. 
  • Those with overtime income will require a verification of employment and income as well as those with bonus income and/or part time income. 
  • For those with overtime income, bonus income, and/or part time income, the employer will also be asked whether the employee’s employment and other income is likely to continue. 
  • The likelihood of their other income to continue is extremely important and their income needs to likely to continue in order for the other income to be used. 
  • A verbal verification of income is normally done prior to closing the mortgage loan to make sure that the mortgage loan applicant is still employed.

Gustan Cho

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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