For many people, buying a home is a big part of achieving the American dream. But when you go to apply for a mortgage, you may run into roadblocks like not having two years of employment history. This is often required to qualify for a conventional loan.
Fortunately, FHA loans provide more flexibility for borrowers who don’t meet all the typical guidelines Keep reading to learn more about getting an FHA mortgage without two years of employment
FHA Loan Overview
FHA loans are government-insured mortgages backed by the Federal Housing Administration They require lower down payments and credit scores than conventional loans Here are some key features
- Down payments as low as 3.5%
- Credit scores starting at 580
- Lower debt-to-income ratios allowed
- More lenient guidelines for short work histories
Because the government insures them, FHA loans open homeownership to more borrowers with less-than-perfect financial profiles. Lenders can still offer low rates while taking on slightly more risk.
FHA Employment Requirements
For FHA loans, you must have at least two years of employment history in the same line of work. This demonstrates stability in your income source.
However, the FHA recognizes that some borrowers have more complex work histories. So they allow more flexibility in certain cases, which we’ll cover.
First, let’s look at the FHA’s general employment documentation requirements:
- 2 years of W-2s
- Recent pay stubs covering 1 month
- 2 years of tax returns if self-employed
- Explanation of employment gaps 6+ months
Applicants who have changed jobs can also provide an earnings trend showing increasing income over the 2 years.
When Is Less Than 2 Years of History Allowed?
The FHA understands borrowers may have legitimate reasons for short work histories. Some cases where less than 2 years can be acceptable include:
- Recent graduates – Can use prior part-time jobs while in school to help meet 2-year requirement
- Previously stayed home with children – Can rely more on spouse’s income
- Military members leaving service – Can use this to satisfy employment history
- Previously unemployed due to disability – Can provide medical documentation
The key is explaining gaps in your history and providing documentation to support it. The FHA will review your entire application, including income sources, assets, and credit, to make a decision.
Having strong compensating factors can offset short work histories. For example, a borrower with an 800 credit score has demonstrated responsible borrowing in the past.
Tips for Qualifying with 1 Year of Employment
If you only have one year of history in your current job, here are some tips to strengthen your FHA loan application:
- Make a larger down payment of 10-20% to reduce risk
- Seek out a co-signer with a strong income and credit history
- Highlight increasing earnings trajectory in your profession
- Obtain FHA approval with manual underwriting, which is more holistic
- Provide alternate sources of income like bonuses, investments, etc.
- Apply with a spouse who has 2+ years of stable income
The key is being upfront about your situation and providing supporting documents so the lender can make an accurate assessment.
Self-Employed Borrowers
Self-employed FHA borrowers only need one year of tax returns to qualify. However, you must be in the same line of work for two years.
For example, if you’ve been a freelance writer for 1.5 years, you could provide a previous W-2 showing prior writing experience. This demonstrates consistency in your field.
Documentation Needed to Apply
To give yourself the best shot at an FHA loan approval with limited work history, collect as much of the following as possible:
- W-2s for any previous jobs
- Recent pay stubs showing YTD income
- Bank statements proving recurring income deposits
- Tax returns if self-employed
- Letters explaining employment gaps
- Documentation of any supplemental income sources
This shows lenders you have adequate and dependable income to support an FHA mortgage payment even if you don’t meet the standard 2-year requirement.
Alternatives to FHA Loans
If you don’t quite qualify for an FHA loan, here are a couple other options to consider:
USDA loans – For moderate income borrowers in rural areas, these require no minimum length of employment history.
VA loans – For veterans and military members, VA loans also don’t dictate any employment history length.
So depending on your background, one of these other government-backed loans may offer more leeway.
The Bottom Line
Securing an FHA loan with less than two years of employment is possible depending on your entire financial profile. Compile documents that provide the full picture of your earnings, assets, borrowing history, and capacity to repay.
And be ready to explain any gaps in your work record. With reasonable compensating factors, you can still get approved for an FHA mortgage even if you fall short of the standard 2-year history requirement.
Rates and fees you should expect without a 2-year work history
When applying for a mortgage without a strong 2-year work history, you may appear as a high risk to the lender. While compensating factors may override the 2-year work history requirement, the lender may still view your application as risky. In this case, you may see slightly higher rates than you would if you had provided an adequate work history. In general, fees tend to be standard. However, you may see a slight increase in fees accessed compared to loans with a strong work history.
Requirements to get a mortgage without two years of work history
While it is still recommended to have a solid two-year work history before applying for a mortgage, you can still get a loan application approval without it if you meet other compensating factors. When applying for a loan without a 2-year work history, there compensating factors can include:
- The amount you have available for a down payment. Having at least 10 to 20 percent down decreases your loan-to-value ratio and helps reduce your risk to the lender.
- Your ability to make regular payments. While you may not have a 2-year work history, lenders will still want to see that you have the ability to make your mortgage payments. They will require proof of your current earnings, such as W2s, pay stubs, tax returns, or bank statements. In addition, income can come in from another source, such as real estate rental income, social security, disability, and alimony.
- Credit score. Without a solid work history, you will need a good to excellent credit score to qualify for a home loan.
- Debt-to-income ratio( DTI). Your debt-to-income ratio is the total amount of monthly debt obligations you have in comparison to your monthly income. Without a 2-year work history, you will want your DTI to be much lower than the minimum lender requirement.
- Cash reserves and investments. Do you have cash reserves available to cover six months of mortgage payments? Do you have substantial investments that can easily convert into cash? These compensating factors can make a big difference when you do not have a 2-year work history.
Get A Home Mortgage WITHOUT 2 Years Of Work History!
Can I get a mortgage without 2 years of work history?
While these documents are conventional for loan applications, some borrowers have less than 2 years of work history, meaning they can’t provide the requested W2s. However, this wrinkle doesn’t spell doom for borrowers who want a mortgage without 2 years of work history to qualify them.
Can you get a home loan with a 2 year job history?
Instead, lenders require two years of income and tax returns from your business. Your employment history is one of the most important factors when it comes to qualifying for a mortgage. And while you generally can’t get a home loan with fewer than two years of job history, there are exceptions.
Can you get a mortgage if you have two years of work?
After all, most mortgage lenders require two years of work history, but they don’t require those two years to be with the same employer or even in the same line of work. First, if you’re moving from one job to another within the same industry and for an equal or higher salary, you shouldn’t have any problem qualifying for a home loan.
Do FHA loans require employment history?
FHA employment requirements may vary by lender, but all FHA-approved lenders will want information about your past employment record, position qualification, previous training and/or education and confirmation from your employer of continued employment. Does Employment History Have to be at the Same Job for FHA Loans?