Although it’s not usually thought of as a quick, easy, or transparent process, things are starting to change in this regard. Getting a modern makeover has been one of the most time-consuming and annoying parts of the mortgage loan cycle.
In this article, we cover what income and employment verifications for home loans are and why theyâre important. We also go over how mortgage lenders can choose a verification technique that enhances borrower satisfaction and operational effectiveness.
Banks typically verify your employment before closing on a mortgage to ensure that you are still employed and able to repay the loan. This verification process usually involves contacting your employer directly and requesting information about your current position, salary, and work history
How Banks Verify Employment
There are a few different ways that banks can verify your employment:
- Verbal verification: This is the most common method, and it involves the bank calling your employer and asking for confirmation of your employment information.
- Fax or email verification: Some banks may request that your employer fax or email a copy of your pay stub or other employment documentation.
- IRS Form 4506-T: If you are self-employed, the bank may request an IRS Form 4506-T, which allows them to obtain a copy of your tax return directly from the IRS.
When Banks Verify Employment
Banks typically verify your employment at two different points in the mortgage process:
- During the underwriting process: This is when the bank is reviewing your application and determining whether or not to approve your loan.
- Just before closing: This is to ensure that nothing has changed with your employment status since you were initially approved for the loan.
What Happens if Your Employer Won’t Verify Your Employment
In some cases your employer may not be willing or able to verify your employment. This could be due to company policy, privacy concerns, or other reasons. If this happens, you should talk to your lender about other ways to verify your income such as providing recent pay stubs, tax returns, or bank statements.
Tips for a Smooth Employment Verification Process
The following advice should help ensure a seamless employment verification process:
- Talk to your employer in advance: Let your employer know that your lender will be contacting them to verify your employment. This will give them a heads-up and help to ensure that the process goes smoothly.
- Provide your lender with accurate information: Make sure that the information you provide to your lender about your employer is accurate, including the company name, address, and phone number.
- Be prepared to provide documentation: If your lender requests documentation to verify your income, be sure to have it readily available.
Verifying your employment is an important part of the mortgage process. You can make sure that your mortgage application is handled quickly and smoothly by being aware of how banks verify employment and what to do if your employer refuses to do so.
What are mortgage income verifications and mortgage employment verifications?
To put it simply, mortgage lenders verify a borrowers income and employment in order to validate:
- That a borrower has a job
- The total income a borrower collects from all sources
- How stable a borrowerâs income is
How do mortgage lenders verify employment and income?
Typically, mortgage lenders get confirmation of a borrower’s income and employment by getting in touch with their employer and examining their most recent employment and income records. These records may include a letter of employment verification, current pay stubs, W-2s, or any other documentation proving employment history and income.
This has historically been a slow, expensive process for the lender. It is also a frustrating and time-consuming process for the borrower. To expedite the process, many mortgage lenders verify income and employment through a third-party verification vendor. There are three main types of third-party verification vendors:
- Those that rely on verification databases
- Those that rely on banking and asset data
- Those that leverage direct payroll connections.
Below, we discuss each type in more detail.
Verification databases have been in use for decades. On behalf of lenders, third-party verification providers such as The Work Number uphold verification databases to confirm employment and income. They purchase the income and employment records of borrowers from payroll vendors such as ADP in order to create their verification databases.
Compared to the manual verifications outlined in the previous section, lenders find that using a verification database vendor to confirm income and employment is significantly faster. But there are notable downsides to verification databases as well:
- Cost: Providers such as The Work Number purchase the data they utilize and then charge lenders for it. That makes the verification process very expensive. Lenders will then frequently charge origination fees to borrowers in order to cover those expenses.
- Data quality: Since a verification database stores static data, it may contain information that is weeks or even months old. Consequently, there’s a chance that the information is erroneous. For instance, a lender may be at risk if a verification database does not reflect a recent job loss.
- Coverage: When it comes to verification databases, there are a lot of gaps in the information. Generally speaking, federal government employees and gig economy workers are not covered by databases.
Verification Of Employment Before Closing Mortgage
FAQ
How do lenders verify employment before closing?
Do banks do employment verification?
What happens if you lose your job right before closing on a house?
Do banks actually call your employer?
Do mortgage lenders verify employment on closing day?
One step in the underwriting process is the verification of employment (VOE). The mortgage lender needs to check that you are and have been employed to ensure they’re taking into consideration all of your income sources. This confirms that the borrower can cover their down payment and any closing costs. Do Lenders Verify Employment On Closing Day?
Do lenders check your employment before closing?
While a lender can choose from various methods to verify your employment, many lenders call employers a day or two before closing to make sure you are still employed. If you want to avoid last minute problems, inform the lender of any changes in your employment before you go to the closing table.
When does a mortgage lender verify employment?
That process happens days to weeks before closing. However, since mortgages can take a month or two to settle, the lender may perform a second verification of employment closer to the closing date, to make sure your circumstances haven’t changed in that time. What Happens if a Lender Cannot Verify Your Employment?
Should you change jobs before closing a mortgage?
Many lenders will repeat income and employment verifications before closing to confirm nothing has changed. This helps the lender reduce risk of a loan buyback. Borrowers should note: experts generally recommend that they not change jobs during the mortgage loan process if they can help it.