Even though starting a new job just before you apply for a mortgage might not be the best idea, it won't always lead to automatic disqualification. Conventional mortgages and federal loan guarantee programs verify employment for the previous two years, but this doesn't always require that it be with the same employer. In some situations, lenders also will overlook gaps in your employment history.
Why Employment History Matters
Lenders are concerned about the history and stability of your employment and the amount of money it brings you. In general, two years of employment or self-employment is enough to establish that your income is reliable and sufficient, which satisfies a lender that you'll have the capacity and funds to cover years of monthly loan payments. Starting a new job, or sometimes even accepting a new position within the same company just before you apply for a mortgage, is a red flag for some lenders. According to Jim Woodworth of Quicken Loans, a job change that also changes your pay structure is especially troubling. For example, accepting a new position in which the pay structure changes from hourly wages or a salary to one that is commission based may affect a lender's employment requirements that the income be reliable and sufficient to cover the loan payments.
- Conventional loans -- those not guaranteed by a federal loan program -- usually require full-time employment for a two-year period, preferably with the same employer, before you buy a house. Some lenders may consider that employment within the same field meets history and stability requirements, even if you change jobs within the standard two-year period.
- Loan guarantee programs such as those backed by the Federal Housing Authority do not require that you be with the same employer for any set time, but they do verify your employment for the most recent two years.
Part-time and Seasonal Work
A lender will usually consider part-time and seasonal work as long as it is not your primary source of income. However, in this case, you must be with the same employer for a continuous two-year period and plan to continue for it to count.
Gaps in Employment History
Although two-year continuous employment with the same employer is the ideal, federal loan guarantee programs and some conventional loans may tolerate gaps in full-time employment as long as you're working at the time you apply for a mortgage, explain why the gap occurred and have a verifiable two-year work history immediately before it. The length of time you must have been at your new job varies according to the length of your employment gap.
- For an employment gap of six months or less that occurs just before you apply for a mortgage, you'll only need to work at your new job for at least 30 days before the closing date.
- For an employment gap of more than six months that occurs just before you apply for a mortgage, you'll need to be at your new job for at least six months before the closing date.
The six-month waiting period doesn't apply if your new job is with same employer. For example, if you were laid off for eight months before returning to work, you're considered exempt from the six-month rule. You're also exempt if you're transitioning from being a full-time student to being a full-time employee or have just returned from a military deployment.
Employment Verification Procedures
Most lenders verify employment information by reviewing pay stubs and annual W-2 Wage and Tax Statements. They might also use a request for verification of employment form to request information from employers or call the employer directly.
If you're self-employed, a lender will usually require copies of signed federal income tax returns for the past two years. Depending on the business structure, the requirement may include both individual and business tax returns.