Verification Of Employment

Verification Of Employment Before Closing Mortgage Guidelines

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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

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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. Talk to us about qualify for a mortgage loan, click here

In this article, we will cover the Verification Of Employment and how it works during the mortgage process.

How Close to Closing Do Lenders Verify Employment?

The timing of when lenders verify employment can vary depending on the lender’s policies, the type of loan being applied for, and other factors. Generally, lenders will verify employment early in the mortgage application process, often during the pre-approval stage or shortly after the initial application is submitted.

Lenders may conduct a final employment verification shortly before closing to ensure the borrower’s employment status has stayed the same since the initial verification.

This final check helps mitigate the risk for the lender and ensures that the borrower’s financial situation has not significantly altered, which could impact their ability to repay the loan.

In summary, while lenders typically verify employment early in the process, they may conduct a final verification closer to closing to confirm the borrower’s employment status has stayed the same.

What is VOD in Mortgage?

In mortgage lending, a VOD refers to a Verification of Deposit. Lenders use this document to confirm the funds in a borrower’s bank account. It typically includes information such as the account holder’s name, account number, current balance, average balance over a specified period, and account activity.

As part of the mortgage application process, lenders commonly ask for a VOD to confirm the borrower’s financial resources and ensure they possess enough funds for the down payment, closing costs, and any other expenses connected with the mortgage transaction. The VOD reassures the lender regarding the borrower’s ability to cover these costs, which helps mitigate risk in the lending 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.

What is the Verification of Mortgage?

The verification of mortgage (VOM) document lenders use to confirm a borrower’s existing mortgage details during the mortgage application or refinancing process. It provides essential information such as the current mortgage balance, payment history, loan terms, and property information.

This document helps the new lender assess the borrower’s creditworthiness and ability to repay the new loan by verifying existing debt obligations and payment history. Typically obtained from the borrower’s current mortgage lender or servicer, the VOM ensures a comprehensive understanding of the borrower’s financial situation. 

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. Click here to apply for mortgage loan with employment gap

What is a 10-day PCV?

A “10-day PCV” likely refers to a “10-Day Payoff Verification” in the context of mortgages or loans. This document provides information on the amount required to pay off the loan balance within the next ten days.

Borrowers may request a 10-day payoff verification when they plan to pay off their loan or mortgage in full to ensure they have the accurate payoff amount, which may differ from the current loan balance due to accrued interest or other factors. Lenders typically provide this document upon request, clarifying the amount needed to settle the loan within the specified timeframe.

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

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.

If you have any questions on Verification Of Employment Before Closing Mortgage Guidelines or borrowers who need to qualify for FHA loans with a lender with no overlays on government or conforming loans, please contact us at Gustan Cho Associates at 800-900-8569. Text us for a faster response. Or email us at . The team at Gustan Cho Associates is available 7 days a week, on evenings, weekends, and holidays. Speak With Our Loan Officer for your mortgage Loans

FAQs About Verification Of Employment Before Closing Mortgage Guidelines

1. What is Verification of Employment (VOE) and when is it conducted? VOE is a process through which lenders verify a borrower’s employment and income details. This includes the borrower’s wages, employment status, and other related information. VOE is typically done during the mortgage application process.

2. What are the types of VOEs, and how are they obtained? There are two types: Written VOE and Verbal VOE. Written VOE involves the lender contacting the borrower’s employer, often the HR department, to verify employment details. Verbal VOE follows a similar process but is done over the phone.

3. Why is VOE important in the mortgage process? VOE ensures lenders that borrowers have a stable income to meet mortgage obligations. Lenders must assess the borrower’s ability to afford monthly payments, including PITI (Principal, Interest, Taxes, and Insurance).

4. How close to closing do lenders verify employment? Lenders typically verify employment early, often during pre-approval or shortly after application. However, a final verification may occur closer to closing to ensure the borrower’s employment status remains unchanged.

5. What is Verification of Deposit (VOD) in mortgages? VOD confirms the funds in a borrower’s bank account, including account balance, activity, and average balance. It helps lenders assess borrowers’ financial resources for down payments and closing costs.

6. How do mortgage underwriters view income and employment types? Mortgage underwriters follow strict guidelines regarding income. Various income types, including part-time, overtime, and bonus income, can be considered if there’s a two-year history. Job stability and the likelihood of income continuation are crucial factors.

7. What is a 10-day Payoff Verification (PCV)? A 10-day PCV provides the amount required to pay off a loan balance within ten days. Borrowers often request this to settle their loan accurately, especially before refinancing or paying off a mortgage.

8. How do employment gaps affect mortgage eligibility? Gaps in employment are allowed, especially if they’re six months or shorter. Borrowers with new jobs must provide documentation such as pay stubs and offer letters. For longer gaps, stability in new employment is essential.

9. Can alternative income sources be used for mortgage qualification? Yes, income sources like social security, disability, pension, child support, alimony, and royalty can be considered if they continue for at least three years.

10. How does quitting a job affect the verification of employment? Giving notice of quitting a job can impact mortgage eligibility as lenders assess the likelihood of continued employment. Such actions raise concerns about job stability and income continuity, affecting the mortgage approval process.

Related> How do lenders view income and employment?

Related> Switching employment during the mortgage approval process

This blog about the Verification Of Employment Before Closing Mortgage Guidelines was updated on March 20th, 2024.

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