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The pandemic and its consequences soaring unemployment, has made it much more difficult for some potential homeowners to qualify for a mortgage. Lenders take a close look at your work history and gaps in employment could raise questions.

Lenders want to know not only how much money you make, but also how likely it is that you will continue to earn that amount. And many are paying more attention to your current job.

“There is an additional employment check for people because of Covid,” says Jennifer Hernández, Houston-based senior loan officer with Mortgage Mutual Heritage. “A lot of people are surprised by this… on the day of the shutdown, we have to verbally verify that the person is still employed, because we are obviously worried about the layoffs.”

Even with a closer look at your employment situation, how you are assessed will still depend on your particular situation. Just because you know someone who has been turned down for a home loan for not having the same job for two years doesn’t mean it will apply to you. “If a real estate agent tells you that you don’t qualify, you shouldn’t give up. You should always talk to a lender, ”says Javier Vidana, an Arizona-based real estate agent with My Home Group and one of the best real estate educators on YouTube. “Realtors like to say empty statements like, you must be two years old [of job history], But there are exceptions.

Lenders also take into account the length of your work. Changing jobs can be a red flag for a mortgage insurer. For some, it may not be a big deal. Getting a big pay raise might qualify you for a bigger mortgage, but if that increase comes from a less stable source than a regular paycheck (i.e. a bonus or commission), it may not have the effect you think.

It is therefore important to speak with a lender or two to see how your specific employment record might impact your mortgage loan application, and understand what they are looking for.

How Mortgage Lenders Evaluate Your Job

During the closing process, your lender will likely need to confirm that you are employed more than once, including on the day of closing. In addition to checking that you still have a job, he will also need to look at two main things:

But it’s not just about sending your resume and a pay stub. There is a lot of nuisance in the way a mortgage underwriter interprets your employment history and how your income is determined.

You should therefore be prepared to have documentation that can answer these two questions in detail:

What is your professional background?

Typically, lenders want to see two years of employment history, but it doesn’t necessarily have to be with the same employer. “We have to see that you are employable,” says Hernández. But there are exceptions to the two year requirement, such as if you are a recent graduate. “If you went to college to become an engineer, it takes several years. Once you graduate and get a job, your time in college matters, ”says Vidana.

If you are not a recent graduate and have been working for less than two years, may have had a work disruption, or taken a career break to raise a family, there is a way to explain your situation. . If we have someone who hasn’t been in the workforce for a long time, we try to connect past jobs to tell their story, says Hernández.

A recent career change can be okay, as long as it’s not part of a pattern or you stay in the same industry. But, if you get a new job and it changes the way you get paid, or if you get paid less, it can be a problem. “The biggest problem I see is if the way you get paid goes from W-2 to 1099, that’s a big red flag,” Vidana says.

Going from a W-2 income to 1099 means you’ve gone from a traditional employee to an independent contractor or self-employed person. And income 1099 is considered less predictable than income W-2. In this case, you may have to wait up to two years for your 1099 income to count towards your mortgage application.

Pro tip

If you are self-employed and have been in business for more than five years, consider a conventional mortgage, as you will only need to provide the previous year’s tax return.

So, whatever your employment history, you must be able to show the mortgage insurer that there is a good chance that you will have a job in the future.

How do you earn your money?

If you are a traditional employee who receives a W-2 tax form every year, it will be much easier to verify your income. But for other less stable income, lenders usually need to see a history of at least two years. And in this case, your income is usually averaged over the previous two years.

This applies to anyone who is self-employed, a freelance writer or independent contractor, like driving for Uber, which is usually documented on a 1099 tax form at the end of the year. Even part-time jobs that earn W-2 income may be subject to more stringent standards. For second jobs, “you have to have a two-year history, showing that you held two jobs, to use that income,” Hernández explains. “We need to know that you have been able to manage these hours consistently. The two-year requirement may also apply to money you earn from overtime, bonuses, or commissions.

While you generally need two years of history for any income you earn outside of “regular” employment, there is an exception. For conventional mortgages you may only need the previous year’s tax return if you’ve been in business for five years or more. It is advantageous if last year’s profits were higher than the previous year.

In the end, not all income is viewed the same way. So when you determine how much house you can afford, only consider the income you can always count on.

Final result

When it comes to getting mortgage approval, proving that you currently have a job or other source of income is only the first step. You must also follow certain guidelines regarding your employment history. And how your income is determined depends on whether you’re self-employed or earning money outside of a traditional job that generates W-2 income.

However, as long as you meet the minimum standards for the type of mortgage you are applying for, lenders have more leeway beyond that. Thus, exceptions to the rules may apply to your personal situation.

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