Employment Verification when Processing a Mortgage Loan

What type of employment verification is done when processing a mortgage loan? Is the employer Tax ID required and verified with the IRS? I have recently applied for a mortgage loan and left the company I worked for of 3 years and started my own small business. However, I have not been in business but 6 months.

2 Answers

The question you pose is a guideline question, which means as lending guidelines change due to market conditions the answer to this question may change as well. In today's market (2009) you, specifically, are going to have a difficult time seucuring financing. Continuous employment is a stiff requirement right now, and having just started a new business that is not established and has not proven income, you will probably not be able to obtain financing through conventional channels.

Currently lenders are looking for two years of emplyoment history in the same line of work. If you have started a business and are new to self employment they will want to see a two year history. Of course there are exceptions to every rule, however thing this market, exceptions are few and far between.

Another solution would be if you had a **co-borrower **that could support the monthly liabilities, but in all sincerity if you were to approach this this way, you would probably be a liability on the loan, bringing monthly debt (credit card payments, etc...) but no qualifying income (due to your new job), therefore having you on this loan would make qualify potentially more difficult. If you do have a co-borrower, and they can support payments alone, I recommend staying off the loan and being placed on title. This is really the ideal position because you are a legal owner of the home, but are not tied to the debt associated with it.

Ultimately, I think you are not going to be able to secure financing for the reasons listed above, if you are approaching this alone, with that said alternative financing is still available in some markets, perhaps hard money, or or seller financing will present other options. If you do choose to explore these options understand theyt will not be nearly as attractive in price and terms as conventional financing currently available.

Employment verification is different for employees and self-employed individuals.  If you are an employee of a company, they will normally contact your company's HR department and request a written verification of employment.  The written VOE covers such things as your employment status, employment dates, amount of pay, likelyhood of continued employment, etc.

For self-employed individuals, normally your tax returns will verify your employment.  Lenders will typically be looking for 1-2 years of self employment and income in order to approve your loan. Lenders may be willing to approve a loan with less than a year of self-employment if you are in the same field, have a strong credit profile, and it is likely that your income will not be negatively impacted by the transition to being self-employed.