This BLOG On Verification Of Employment And Income For Mortgage Guidelines Was Written PUBLISHED On May 21st, 2020
Employment, income and credit are the most important factors in determining mortgage loan approval.
- Between the two, income is probably more important than credit in determining mortgage approval
- Borrowers can have prior bad credit and low credit scores and can qualify for a residential mortgage loan if they have documented steady employment and qualified income
- However, home buyers cannot get a mortgage loan approval even if they 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 applicant stated on their mortgage loan application needs to be verified by the loan officer via a verification of employment.
- A verification of employment can be either a verbal verification of employment or a written verification of employment and/or both
- A written verification of employment is done at least once during the mortgage process
- 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.
What Is Verification Of Employment
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 processor
- Verification of employment and income require the borrower’s authorization
- 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, lenders also want to see other forms of employment documents such as the following:
- two years tax returns
- two years W-2s
- 30 days of paycheck stubs
- 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 lender in order for them to secure a home 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
- Also what the borrower will continue to make for the next three years is important to lenders
- Overtime income, bonus income, part time income needs a two year seasoning requirements in order to count
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.
Verifying Employment For Self-Employed Borrowers
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 borrower is a self employed income wage earner and state what income has been the past several years and certify that he has been accountant of record for the past several years
- If underwriter requires more proof to verify employment besides CPA Letter stating own business, borrower can provide lender with a business license issued by city, county, or state
Normally, lenders will require two years of business license to provide and document that they 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 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 borrowers 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 underwriter will use.
Overtime And Other Income Wage Earners
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
Borrowers who need to qualify with a direct lender with no mortgage overlays on government and conventional loans can contact us at Gustan Cho Associates at 262-716-8151 or email us at firstname.lastname@example.org. GCA Mortgage Group has zero overlays on FHA Loans, VA Home Mortgages, USDA Mortgage Loans, and Conventional Loans.