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.
Hey there, house hunters! So you’re diving headfirst into the exciting world of mortgages, and you’ve stumbled upon this mysterious thing called “employment verification.” Don’t worry, we’ve got your back. We’ll answer the burning question on everyone’s mind: do underwriters actually call your employer?
Spoiler alert: Yes, they do. But don’t fret it’s not as scary as it sounds. In fact, it’s a crucial step in the mortgage process that ensures you’re financially ready for your dream home.
Why Do Underwriters Call Your Employer?
Underwriters are like the detectives of the mortgage world Their job is to assess your financial situation and make sure you can handle the loan you’re applying for One of the key ways they do this is by verifying your employment,
Here’s why it’s so important:
- Income verification: Underwriters need to confirm that you have a stable job and income to make your monthly mortgage payments. They’ll verify your salary, job title, and how long you’ve been employed.
- Debt-to-income ratio (DTI): This measures how much of your monthly income goes towards debt payments. Underwriters use your verified income to calculate your DTI and ensure it’s within acceptable limits.
- Fraud prevention: Verifying your employment helps prevent mortgage fraud by ensuring you’re who you say you are and that your income is legitimate.
How Do Underwriters Verify Your Employment?
There are a few ways underwriters can verify your employment:
- Phone call: This is the most common method. Underwriters will call your employer using a phone number they can verify through a third-party source, like Google. They’ll ask questions about your employment status, salary, and job title.
- Written verification: Some lenders may request a written verification of employment form from your employer. This form will typically include your salary, job title, and start date.
- Tax return transcripts: If you’re self-employed, underwriters may request tax return transcripts from the IRS to verify your income.
What Happens if My Employer Doesn’t Respond?
Your loan approval may be delayed if your employer ignores the underwriter’s attempts to get in touch with them. Make sure your employer is aware that you are applying for a mortgage and that the lender may contact them in order to prevent this.
The Bottom Line: It’s All About Transparency
The mortgage process can seem overwhelming, but understanding the steps involved, like employment verification, can help you feel more prepared and confident. Remember, underwriters are just doing their job to ensure you’re getting a loan that’s right for you. By being transparent and providing accurate information, you can help the process go smoothly and get into your dream home sooner.
Bonus Tip: Gather your employment information beforehand. This contains your pay stubs, your employer’s contact details, and your tax returns if you are self-employed. Having this information readily available will make the verification process much easier.
So, there you have it! Now you know why underwriters call your employer and what to expect during the verification process. By being prepared and understanding the importance of this step, you can navigate the mortgage journey with confidence.
Why do lenders verify employment and income for mortgages?
Lenders verify a borrowers employment and income to determine the borrowers ability to repay a home loan. Lenders lower the chance of a loan defaulting and the possibility of buyback requests by doing this.
A loan buyback is when an investor that bought a loan on the secondary market requires the original lender to repurchase the loan. This can happen if an investor discovers that the lender did not perform adequate due diligence. Despite the name, loan buybacks are not voluntary and represent huge losses on lendersâ income statements, especially in recent years.
Income and employment verifications also benefit borrowers. If a borrower takes out a loan that goes into default, their credit score will fall. This will make it more difficult for the borrower to get credit in the future. In a worst-case scenario, a borrower who cannot make their mortgage payments could also lose their home.
When do mortgage lenders verify income and employment?
Lenders perform verification of income and employment for mortgages multiple times during the loan cycle:
Many lenders will now demand that borrowers produce documentation of their income and employment, such as several pay stubs. Lenders may also run VOI and VOE reports.
Every lender will perform income and employment verification before a loan goes through the underwriting process.
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.
How do Underwriters Evaluate Employment
FAQ
Do underwriters always verify employment?
Do all lenders verify employment the day of closing?
When getting a loan do they call your employer?
How does underwriter verify income?
What does a mortgage underwriter do?
An underwriter’s job is to thoroughly review your loan application, verify financial documents, fill qualification gaps and then approve or deny you for a mortgage. During underwriting, they will flag any missing information, verify your earnest money deposit and start the title review and appraisal process.
What does an underwriter look for in a mortgage?
Income and employment Finally, the underwriter will usually call your employer to verify your employment history and to do an income analysis. While this may sound complicated, it’s just an extra check that you make enough money to afford your mortgage payments.
Do you talk to the underwriter directly?
As the borrower, you’ll never talk to the underwriter directly. Here are some specific tasks the underwriter takes on: The underwriter reviews not only your application, but all the other documentation you provided, including your credit report, tax returns, pay stubs and proof of funds.
How does an underwriter check your income?
Verifying employment and income. Underwriters verify your employment history to make sure your income is stable. They may call your employer to make sure you work there and will review your last two years’ W-2s or tax returns. Underwriting systems also compare your income and debts, calculating what’s called a debt-to-income ratio, or DTI.