Verification Of Employment For Mortgage Loan
This BLOG On Verification Of Employment For Mortgage Was Written By Gustan Cho NMLS 873293 of The Gustan Cho Team at CrossCountry Mortgage Inc. NMLS 3029
Employment, income, and credit are the most important factors in qualifying for a mortgage. Lenders want to see that the borrower has steady employment and most importantly, that the borrower is going to be employed for the next three years and able to afford to make his or her monthly mortgage payment. There are two ways of looking at qualifying for a monthly mortgage payment:
- The lender will tell you how much you qualify for and what the maximum housing payment should be
- You as a new home buyer asking the question on how much home can I afford?
Most home buyers depend on their incomes to pay their mortgage loan payments. Mortgage lenders require two years tax returns, two years W-2s, and most recent pay check stubs. However, besides just seeing their recent pay check stubs, mortgage lenders will require verification of employment for mortgage which is also called VOE. There are two types of verification of employment for mortgage.
- The first is the written verification of employment for mortgage
- The second is a verbal verification of employment for mortgage.
- Mortgage lenders verify the mortgage loan borrower’s income through the verification of employment not just to make sure that the employee is still working but also to verify the amount they are making as well as the stability of the income and the likelihood for the income to remain stable and the likelihood of the borrower’s future employment for both a home purchase and a refinance mortgage.
- Mortgage lenders also do a last minute verbal verification of employment prior to issuing a clear to close as well.
Process Of Verification Of Employment For Mortgage Process
- The written verification of employment is first done during the mortgage loan underwriting process and normally prior to the conditional approval.
- The mortgage underwriter or the mortgage loan processor will contact the human resources department of the mortgage loan applicant and get the proper fax number to the contact person that will be verifying the employment of the borrower.
- The written verification of employment form is a page long form that needs to be completed by the HR manager.
- The items that the HR manager completes should match the income information the mortgage loan applicant has completed on his 1003, which is the formal mortgage application.
- The HR manager will either fax or email the completed questionnaire back to the mortgage loan underwriter or to the mortgage loan processor.
Why Is Verification Of Employment For Mortgage Borrowers So Important
Mortgage lenders need to follow federal mortgage lending guidelines with regards to debt to income ratios:
- There are maximum debt to income ratio requirements mandated by both HUD and Fannie Mae.
- Maximum front end debt to income caps allowed for FHA loans is 46.9% and maximum back end debt to income ratio caps is set at 56.9%.
- For conventional loans, maximum debt to income ratios are capped at 45%.
- There are no front end debt to income ratio caps on conventional loans.
- Also, the mortgage borrower’s employment needs to likely continue for the next three years.
- A final verbal verification of employment will be required prior to the mortgage underwriter issuing a clear to close.
Cases When Verification Of Employment For Mortgage Applicants Will Kill Clear To Close
Prior to the mortgage loan underwriter issuing a clear to close, the underwriter or one of the underwriter’s associates will do a final verbal verification of employment. In most cases, it will just be a formality. However, there are mortgage loan borrowers who quit their jobs and get another job after the initial verification of employment thinking that the mortgage lender will not do another verification of employment. There are other cases where a mortgage borrower will give his or her employer notice that they will be quitting in several weeks or several months. When the mortgage loan underwriter contacts the Human Resources department for a final verification of employment, one of the questions they will ask is whether the employee’s employment is likely to continue for the next three years. If the mortgage loan borrower gave the employer notice that they will be quitting, this will back fire on the mortgage borrower and kill the clear to close and the mortgage deal.