How to Get a Mortgage Without Two Years of Work History
EG
Summary:
Lenders usually require two years of employment history to qualify for a mortgage. However, there are some ways around this rule if you’ve recently changed jobs or haven’t been in the workforce long enough to qualify.
The home-buying process can be lengthy. Even after you found your dream home and had an offer accepted, it can take weeks (or longer) for your mortgage lender to ultimately approve your loan. This process, known as mortgage underwriting, is when your lender verifies all the information you provided in your mortgage application, including your credit history, assets and liabilities, and income.
Your income is one of the most important things lenders look at when you apply for a mortgage. Not only does a reliable income show them that you can make your monthly mortgage payments on time, but the amount of income you earn will help them determine the size of the loan you qualify for.
Unfortunately, the mortgage industry has strict rules about the job history you need to qualify for a mortgage. The good news is there are some exceptions, and you may be eligible for a home loan even if you think you aren’t.
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How much work history do you need to get a mortgage?
Generally speaking, mortgage lenders require that you have at least two years of employment history to qualify for a loan. To ensure you meet those requirements, your lender will go through a process known as verification of employment (VOE), which is a part of the underwriting process.
Mortgage lenders verify your monthly income in several ways, including through two years of tax returns, W-2 forms, your most recent pay stubs, and your bank statements. Lenders are also likely to contact your employer to verify your employment history. And if you’ve worked for multiple employers during the past two years, they may contact all of them.
Why do mortgage lenders need your employment history?
Your employment history is important for two primary reasons. First, having at least a two-year employment history shows lenders you’re capable of holding a job and are likely capable of making your mortgage payments.
The income verification process also helps lenders determine how much of a loan you qualify for. They use a metric called your debt-to-income ratio (DTI), which is the percentage of your monthly income that goes toward debt payments. Your DTI is what ultimately determines the monthly mortgage payment you can afford and, therefore, the loan amount you’re eligible for.
If you’ve stayed at the same job for several years with reliable income (and even bonus income), you may be curious to see what mortgage rates you qualify for. Start with the lenders below to get a better idea of your potential financing.
Getting a mortgage after a job or career change
It’s common for people to stay at a job for less than two years, but how does this affect your mortgage eligibility? The good news is that, in many cases, it won’t affect it at all. After all, most mortgage lenders require two years of work history, but they don’t require those two years to be with the same employer or even in the same line of work.
First, if you’re moving from one job to another within the same industry and for an equal or higher salary, you shouldn’t have any problem qualifying for a home loan. That being said, you may run into more problems if you switch to a lower-paying job. While you’ll still get credit for your two years of employment history, you’ll qualify for a loan amount based on your lower monthly income.
The situation could also be different if you’re switching to a different industry entirely. If you’re moving to a new industry with job stability and comparable pay, you may not have any issues. On the other hand, if you’re moving to a less stable industry, your mortgage lender may have concerns.
Pro Tip
Switching jobs within two years of applying for a home loan is okay, but it could raise some red flags for lenders if you change jobs too frequently.
What about job changes in the case of self-employment?
The rules are a bit different if you’re changing jobs because you’re venturing into self-employment. Unlike other job changes, your past employment won’t typically count toward your work history unless it’s in the same field. Instead, lenders require two years of income and tax returns from your business.
Getting a mortgage without two years of work history
Your employment history is one of the most important factors when it comes to qualifying for a mortgage. And while you generally can’t get a home loan with fewer than two years of job history, there are exceptions.
First, lenders can make an exception to the two-year rule if you have other compensating factors that make you a great candidate for a loan. Some positive factors that could compensate for a short employment history include:
- An excellent credit score
- A large down payment
- A low debt-to-income ratio
- Large reserves of cash
You may also qualify for a mortgage without a two-year job history if you’re applying with a co-applicant that meets the qualifying income requirements. For example, suppose a married couple is applying for a mortgage together, and one borrower has at least two years of income history while the other doesn’t. The couple could qualify with the one borrower’s monthly income, as long as it’s enough to meet the DTI requirements.
Pro Tip
If you aren’t sure whether you’ll qualify for a mortgage without two years of tax returns, sit down with a mortgage loan officer. They can advise you on your options. You may also want to advise your real estate agent of your prospective loan, as the type of loan may influence your potential home options.
Requirements for different mortgage loans
Different mortgage loans have different employment history requirements. Depending on the home you’re looking to purchase, you may qualify for a different loan program with more relaxed requirements.
- Conventional loan. Conventional loans require that you provide a two-year employment history in a related field to your current position. If your resume shows significant or multiple employment gaps, you must be at your current position for at least six months to qualify.
- FHA loan. As with conventional loans, FHA loans require a job history of two years. Though these jobs must be related in some way, you do not need to remain at the same job for over two years. Again, depending on your prior employment, you may need to remain with your current employer for six months before becoming eligible.
- VA loan. Though you can apply for a VA loan using a two-year job history, you may also qualify if you received relevant schooling or performed military service. That being said, if you are an active military member, you may only qualify for a VA loan if your release date is over 12 months away.
- USDA loan. The USDA does not require you to stay with your current employment for a minimum period. However, you still must provide a two-year job history,
Getting a mortgage without a job
Even if you don’t have a job, you may still be able to qualify for a mortgage. Lenders simply require that you have a steady income — they don’t necessarily care where it comes from. Other sources of income that may help you qualify for a mortgage include:
- Retirement income
- Child support or alimony
- Investment income
- Rental property income
You may also qualify for a mortgage without a job if you apply with a co-applicant who meets the income and DTI requirements. In some cases, you could also qualify if you have significant cash reserves or assets that are sufficient to cover your entire mortgage. Finally, if you’re between jobs, a lender may approve you for a mortgage based on a new job offer letter.
FAQs
Can you get a mortgage if you just started a new job?
Yes, you can get a mortgage even if you’re just starting a new job. Lenders look at your previous two years of income but don’t necessarily require that those two years be spent in your current job or in the same industry.
How do you prove cash income for a mortgage?
To use cash income to qualify for a mortgage, you’ll have to provide tax forms that prove your income. If you haven’t been claiming your cash income on your tax return, then you won’t be able to use it to qualify for a mortgage. In addition to tax forms, your lender may also want a letter from your employer verifying your employment.
Key Takeaways
- In most cases, you’ll need at least two years of employment history to qualify for a mortgage.
- Lenders don’t necessarily require your two years of work history to be with the same employer or even in the same industry.
- If you don’t have two years of job history, you may qualify for a mortgage with compensating factors such as an excellent credit score, a large down payment, or a low DTI.
- Even without a job, you may qualify for a mortgage if you have another source of regular income or a co-applicant with sufficient monthly income.
EG
Erin Gobler is a Wisconsin-based personal finance writer with experience writing about mortgages, investing, taxes, personal loans, and insurance. Her work has been published in major outlets, such as SuperMoney, Fox Business, and Time.com.
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