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A dependable income is a must for getting a mortgage. Lenders want evidence that youll be able to repay a loan, so typically they like to see a steady two-year work history with a stable or rising income.
“The more consistent your job and work history are, the better,” Scott Lindner, national sales director at TD Bank, said via email.
But that doesnt mean any kind of job change or employment gap will sink an application. Heres what to know about qualifying for a mortgage if your work history is a little outside the box.
Purchasing a home is an exciting milestone in life But qualifying for a mortgage loan can seem daunting, especially when it comes to your work history. Most lenders want to see at least two years of stable employment before approving a mortgage application. However, there are ways to get approved even if you don’t meet this traditional requirement.
This comprehensive guide covers everything you need to know about work history for qualifying for a home loan. Keep reading to learn mortgage lender employment requirements, how different incomes are calculated, and strategies for getting approved with limited work history.
Why Lenders Review Your Work History
When you apply for a mortgage, lenders assess multiple factors to determine if you can responsibly repay the loan. Your income, savings, and outstanding debts all play a role. But one of the most significant criteria lenders evaluate is your employment history.
Lenders prefer applicants to have at least two years of stable job history for a few key reasons
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It demonstrates financial reliability. Consistent income from ongoing employment gives lenders confidence you can make monthly mortgage payments. Gaps in work history or changing jobs frequently can raise uncertainty.
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It aligns with underwriting guidelines. Government agencies like Fannie Mae and Freddie Mac, which buy mortgage loans from lenders, require reviewing two years of income history during underwriting.
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It indicates lower risk. Borrowers with longer tenures at the same employer or in the same field tend to have lower mortgage default rates. A proven pattern of employment suggests stability.
While lenders strongly prefer a two-year work history, it’s not necessarily a hard requirement. There are situations where limited history may be acceptable if you have compensating factors.
Minimum Work History Requirements by Mortgage Type
Mortgage programs have different rules regarding the minimum length of employment history needed. Here are the general requirements for major home loan types:
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Conventional loans: Typically require two years of history, with at least six months at the current job if there are gaps
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FHA loans: Look for two years of history, with six months in the current role if gaps exist
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VA loans: Want two years of employment or military service; one year at current job if transitioning from military
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USDA loans: No minimum tenure required, but must document two years of work history
While these are the standard guidelines, some lenders are more flexible than others. Shopping around can help you find a lender willing to approve your situation.
How Employment Types Are Calculated
Beyond just reviewing your tenure, lenders also closely evaluate your income. However, not all incomes are treated equally when it comes to mortgage qualification.
Salaried Income
For salaried applicants, lenders simply take your gross annual income and divide it by 12 to get your average monthly income. No two-year history is required in most cases.
Hourly and Overtime Pay
Income calculations get more complicated for hourly or overtime pay. Lenders will average your income over the past two years to determine qualifying monthly earnings. Inconsistent hours or recent raises may mean your actual income isn’t fully counted.
Bonus and Commission Income
You generally need two years of receiving bonus or commission income for lenders to consider it as part of your qualifying income. And if this income has been declining, they may discount it.
Self-Employment Income
When self-employed, you’ll need to provide two years of tax returns. Lenders have formulas to determine your monthly income from those returns. Newly self-employed applicants may have trouble qualifying without two years of self-employment history.
As you can see, salaried applicants tend to have an advantage over those with other income types when it comes to mortgage qualification.
Strategies for Limited Work History
If you don’t quite meet the two-year employment history standard, here are some tips for getting approved:
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Make a larger down payment – More equity can help offset limited work history in lenders’ eyes
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Have excellent credit – A high score and solid history help demonstrate lower risk
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Get a cosigner – Adding someone with a stable job history improves your chances
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Provide proof of future income – Offer letters, contracts, or verbal employment verification
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Use nontraditional credit data – Some lenders may factor in rent or utility bill payment history
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Explain employment gaps – Write a letter to clarify your work timeline for lenders
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Consider alternative property types – Co-ops and condos may have more flexible requirements
The right lender and loan program for your situation can make all the difference. Don’t get discouraged if you don’t initially qualify – explore all your options.
FAQs About Work History and Mortgage Loans
How many years of work history do lenders want to see?
Most lenders want to see at least two years of employment history on a mortgage application. However, they may make exceptions depending on your specific circumstances.
Can I qualify with only one year of work history?
It’s challenging to qualify with only one year of work history, but not impossible. Having strong compensating factors like a large down payment and excellent credit can help offset the limited history.
What if I’m starting a new job soon?
If you’re starting a new job, provide the lender your offer letter and documentation of your future salary. Some may approve you based on this expected income.
Do all incomes require two years of history?
Salaried income usually only requires a paystub, but bonuses, overtime, and self-employment income need a two-year history in most cases.
What if I’m retired or unemployed?
Retirees can use retirement account distributions or Social Security income to qualify. The unemployed may use alternate sources like spousal income, assets, or future job offers.
How do lenders verify your employment history?
Lenders verify your history by requesting W-2s, paystubs, tax returns, and through direct employment confirmation. The underwriter may call your employer’s HR department.
What if I’m starting my own business?
New business owners without two years of self-employment history may have difficulty qualifying. However, some lenders offer alternative “business loans” based on projected earnings.
Can I exclude previous short-term jobs from my history?
You can’t selectively exclude previous jobs from your reported history. Lenders will review your entire employment record, so gaps will need to be explained.
The Bottom Line
Your employment history is definitely important to lenders when applying for a home loan. But don’t assume you won’t qualify just because you lack two full years of stable work history. With the right loan program and lender, you can likely overcome this hurdle and get approved for the mortgage you need to buy your dream home.
Self-employment
Self-employment isnt a roadblock to a mortgage as long as you can prove a history of steady income from your business. Lenders generally want to see two years of business tax returns, year-to-date profit and loss statements, and sometimes business bank statements, Lindner said.
“As with any borrower, self-employed professionals can increase the chances of qualifying for a mortgage by keeping an eye on their credit score, monitoring their debt-to-income ratio and getting their paperwork in order to submit with a lender,” he added.
New job out of school
It’s possible to qualify for a mortgage if you just started a job after completing your schooling. Education can count as work history, whether it’s a doctoral program or trade school, Moore says.
Requirements vary by loan program. Your chances of success will be higher if your job is related to your degree, Lindner said.
Just finished medical school? Some lenders, like TD Bank, offer special medical professional mortgage programs for physicians, medical residents and dentists. The programs have low down payment requirements, dont require private mortgage insurance and allow higher debt-to-income ratios than traditional mortgages to accommodate those with medical school debt.