Financing a home doesnât have a reputation for being a particularly fast, pleasant, or transparent processâbut tides are changing. One of the most time-consuming and frustrating components of the mortgage loan cycle has been getting a modern makeover.
In this article, we cover what income and employment verifications for home loans are and why theyâre important. We also explain how mortgage lenders can select a verification method that improves operational efficiencies and the borrower experience.
Getting approved for a mortgage loan requires proving to lenders that you have a stable job and income Loan companies thoroughly verify employment information during the mortgage application process Knowing what to expect can help you provide the necessary documentation and ensure the verification process goes smoothly.
Why Loan Companies Verify Employment
There are a few key reasons lenders verify employment for mortgage applicants:
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To confirm you are currently employed and have steady income. Lenders want to see you have the means to make monthly mortgage payments.
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To verify your job title, employer, length of employment, and income details. This helps lenders understand your financial situation.
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To check that the employment details you provided are accurate This protects lenders from potential fraud,
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To meet lending regulations and guidelines. Most lenders are required to verify employment before approving loans.
By taking steps to confirm your employment status and income, lenders can properly assess your ability to repay the mortgage loan.
How Loan Companies Verify Employment
Loan companies typically use a two-pronged approach to verify employment:
1. Contacting Your Employer
The main way lenders verify employment is by contacting your employer’s human resources department or your direct supervisor. This usually happens during the loan processing stage after you’ve submitted your application.
The lender will ask your employer to confirm:
- Your job title and employment status
- Length of employment
- Salary and frequency of pay
- Likelihood of continued employment
Many lenders only need verbal confirmation over the phone. But some may request details via email, fax, or an official employment verification form.
2. Reviewing Income Documents
In addition to employer confirmation, lenders also verify income using documents you provide. Common income documents include:
- W-2 forms
- Pay stubs covering 1-2 months
- Tax returns for the last 2 years
- Bank statements showing direct deposits
Lenders review these documents to confirm your reported income on the mortgage application. They may also use pay stubs and bank statements to identify any new income sources.
Self-employed borrowers may need to provide further documentation such as 1099 forms, invoices, business tax returns, and proof of client contracts.
When Employment Is Verified in the Mortgage Process
Employment verification typically happens at two key points:
1. During Initial Underwriting
After you submit your application, the lender needs to verify your income, assets, and other details during underwriting. At this stage, the lender contacts your employer and reviews your income documents to approve the loan.
Initial employment verification happens within the first 1-2 weeks of applying for a mortgage loan.
2. Right Before Closing
Since it takes 30-60 days on average to close on a home loan, the lender will re-verify your employment shortly before the closing date. This ensures your employment status and income details haven’t changed.
Re-verification usually happens 1-2 weeks before loan closing once the home appraisal and other conditions have been cleared.
Providing Proper Documentation for Employment Verification
You can make the verification process go more smoothly by having complete employment documentation ready. Here are some tips:
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Inform your HR department or manager that the lender will be contacting them to verify your employment. This ensures they can respond promptly.
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Collect recent pay stubs, bank statements, W-2s, and tax returns. Try to provide 1-2 months of pay stubs at minimum.
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If self-employed, gather additional documents that apply like business tax returns, contractor agreements, invoices, etc.
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Sign any release forms so the lender can conduct employment verification.
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Provide accurate employer contact information like the phone number, address, supervisor name, and department.
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If any details changed recently (new job, income increase, etc.), provide documentation like an offer letter, pay raise notice, or contract.
Proactively gathering the right documents can prevent delays in getting your mortgage approved.
What to Do If Employment Can’t Be Verified
Sometimes lenders struggle to get employment verification from employers. Here are some things you can try if this happens:
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Contact the HR department yourself and ask them to verify your employment details with the lender. Make sure to give them permission if required.
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Ask the lender if pay stubs, tax returns, and bank statements showing direct deposits can substitute for verbal verification. These still confirm your income.
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Switch to a different lender. Some may have more experience navigating unique employer policies.
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As a last resort, provide contact info for an alternative employee like a supervisor, manager, or coworker who can verify your status.
With some effort, you can usually sort out any verification issues that pop up. But be prepared that it may delay the loan approval process.
Special Cases: Verifying Self-Employment or Recent Job Changes
Lenders take extra steps to verify employment in certain situations:
Self-Employed Borrowers
For self-employed applicants, lenders verify income using tax returns and bank statements. They may also ask for:
- A 4506-T form to request IRS tax return transcripts
- Letters from CPAs attesting to your income
- Business documents like licenses, tax returns, bank statements, and client invoices
Expect the lender to scrutinize your income details to confirm your self-employment status and earnings.
Job Changes During the Loan Process
If you start a new job or get laid off during the mortgage process, immediately inform your lender. They will need to verify your new employment and income details, which may delay approval.
Provide documents like an offer letter, first pay stub, and W-2s from your previous job. Be patient and keep the lender updated on any changes.
Key Takeaways on Employment Verification for Mortgages
Getting approved for a home loan is largely based on having steady employment and sufficient income. Loan companies verify this by:
- Contacting your employer to confirm employment details
- Reviewing income documents like pay stubs, tax returns, and bank statements
Make the verification process easy by informing your employer, collecting needed documents, and keeping your lender updated on job changes. With preparation and open communication, you can get through the employment verification process with no hiccups.
Banking and asset data
Other third-party verification vendors, like Finicity and Plaid, use banking and financial asset data to verify income and employment. They do this by building integrations with financial institutions and gaining permissioned access from borrowers to access the data associated with their individual accounts.
The vendors then use this data to infer income and employment status. For example, banking data shows if a borrower consistently receives a direct deposit from an employer. This serves as proof that the borrower has a job. A lender can then use the value of those deposits to make assumptions about the borrowersâ base, gross, and net pay.
The advantage of this approach is that it tends to be less expensive than verification databases, because vendors arent buying and selling data. But there are also some drawbacks to using banking and asset data for income and employment verification. Namely:
- The data is only as fresh as a borrowerâs latest direct deposit.
- The data only offers indirect information about income.
- Borrowers may be hesitant to grant lenders and third-party verification vendors access to their sensitive bank account data.
You can read more about the potential pitfalls of banking data for income and employment verifications here.
Another type of third-party verifications leverages direct payroll connections. This is when a verification vendor builds integrations with original sources of income and employment data, including:
- Payroll software (like MyADP)
- Employer payroll systems (like those owned by Starbucks, Target, and USPS)
- Gig platforms (like Uber and Lyft)
Vendors who use direct payroll connections access a borrowerâs data within these systems by requesting permission from the borrower. Once connected, the vendor can generate VOI and VOE reports for a mortgage lender in seconds.
Compared to manual verifications and verification databases, payroll connection-based verifications are less expensive. Payroll connections also allow lenders to perform verifications in real time and from the source of truth, ensuring high accuracy. The best payroll connection verification vendors even pull required pay stubs and W-2s from borrowers accounts, saving everyone time and hassle. Examples of verification vendors that leverage payroll connections include Argyle, Pinwheel, and Truv.
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
Verification Of Employment
FAQ
How do personal loan companies verify employment?
How does a lender verify employment?
Do loan companies call your job?
Do banks really call your employer verify employment?
How do mortgage lenders verify employment?
Mortgage lenders usually verify your employment by contacting your employer directly and by reviewing recent income documentation. The borrower must sign a form authorizing an employer to release employment and income information to a prospective lender. At that point, the lender typically calls the employer to obtain the necessary information.
How do lenders verify income and employment?
Lenders verify income and employment for mortgages by requiring borrowers to provide proof of income and employment, such as multiple pay stubs. They may also run VOI (Verification of Income) and VOE (Verification of Employment) reports.
How does a lender verify a loan?
To verify your employment and income for a mortgage loan, a lender may contact your employer directly to confirm your job title, employment status, and income. They may also review employment documents such as pay stubs, W-2 forms, or tax returns.
Why do lenders verify employment?
Lenders verify employment to assess the borrower’s ability to repay the loan. Consistent employment and income indicate financial stability, making the borrower a lower risk. Verification of employment is important as uncertain or inconsistent income may increase the perceived risk, which could impact loan approval or terms.