Length of Employment to Obtain Mortgage

how long must I be employed with a firm to obtain a mortgage. ?I am on salary--no commission and I am not self employed.My wife is also employed full time.

5 Answers

There isn't really a hard and fast answer to this question. It depends on several factors and I'll address them one by one.

1. How is your compensation structured? If you earn 100% salary it's easy for an underwriter to calculate and predict your income in the future. However, if you derive a substantial part of your earnings from bonus or commissions, you'll have to be able to show a history of this kind of income for it to be counted in your debt-to-income ratios. If 25% or more of your income is commission or bonuses, you are pretty much self-employed as far as underwriters are concerned -- like the self-employed, you'll need at least a 2-year history of this compensation to get credit for it (note: that doesn't mean that you have to have been at the same firm but you do have to have worked in the same capacity and the same industry).

**2. How long have you worked in that field? **Your history with a specific company is less important than your experience in the field. If you have been a CPA for decades it matter less that you are now at Acme Company instead of AAA Industries.

3. How is your contract structured? I got people approved for loans when they had new jobs that they had not even started yet. In one case, the applicant was a new college football coach who had a guaranteed 5-year contract and a ten-year history of coaching college-level sports.

4. What are your prospects? Just out of college and working your first job? That may not be a problem if you are in the right field and with the right credentials -- for example, a med school grad with a hospital job or a new lawyer working for the state government.

**5. How's your overall pattern? **People with new jobs who demonstrate a pattern of repeated job changes with no advancement have a much harder time getting approved for mortgages. And these days, those in troubled industries will have challenges too. Underwriters are tasked with determining the likelihood of you remaining employed as part of your income analysis.

6. What are your compensating factors? These are items that help overcome a recent job change -- your wife's employment is one of them. others are excellent credit, assets (enough to pay your bills for several months if you were to lose your job), and a solid debt-to-income ratio.

On the other hand, if your employment history is spotty, you have barely enough saved for a down payment, your credit is mediocre, and your income just enough to qualify, your recent job change will be more of an issue. Here is what FHA's underwriting guidelines have to say about income stability:

"We do not impose a minimum length of time a borrower must have held a position of employment to be eligible.  However, the lender must verify the borrower's employment for the most recent two full years.*  If a borrower indicates he or she was in school or in the military during any of this time, the borrower must provide evidence supporting this claim, such as college transcripts or discharge papers.*  The borrower also must explain any gaps in employment spanning one month or more.*  Allowances for seasonal employment, such as is typical in the building trades, etc., may be made if documented by the lender.*

To analyze and document the probability of continued employment, lenders must examine the borrower’s past employment record, qualifications for the position, previous training and education, and the employer's confirmation of continued employment.  A borrower who changes jobs frequently within the same line of work, but continues to advance in income or benefits, should be considered favorably.*  In this analysis, income stability takes precedence over job stability."*  

As with so many mortgage questions lately, the answer is.....It depends !

If this is a job right out of college, in the field in which you have received your degree (or technical degree), you may only need 1 month. The same holds true if you have changed from one job to another in the same line of work (Income level staying the same or increasing).

If you have had a long gap in employment, and are just returning to work, you may be required to establish a 6 month work history for qualification. This is often the case where a parent has taken time off to raise a child and is now returning to the workforce.

If the new employment is paid on commission and / or other variable income types, up to 2 years of income history may be required.

In your case, one of the first 2 examples are most likely the case. Please consult with a Mortgage lending professional in your area to review your exact situation.

For a W-2 employee the length of time on the job is not as important as the length of time employed. FNMA, FHLMC and HUD want to see a minimum of a two year employment history. If there are gaps of employment over the last 24 months they require a written explanation. A W-2 employee generally needs to provide the last thirty days of pay stubs prior to closing on a mortgage. This is an underwriting call and can vary from one lender to the next. Most lenders will require a written Verification of Employment and a telephone certification of employment prior to the loan closing. If the employer comments in the Verification of Employment that the employee is a new hire and is still in his/her probationary period and the employer does not mark that the probability of continued employment as “good” the underwriter may not accept the employment. This would mean that the employee would need to be employed for at least thirty days prior to closing on the loan with a new verification of employment that states that the probability of continued employment as “good.”

If the borrower has recently completed college and does not have a consecutive 24 month employment history the lender can use a copy of the borrower’s college transcripts and diploma in exchange for a two year employment history.

Over the years underwriting employment has changed considerably. The industry went from very stringent guidelines such as requiring a minimum of two years in the same line of work, to the opposite extreme of no income verification at all for borrowers with a large down payment and a great credit history or FICO score. The days of stated or no income verifying loans is over and underwriting has adopted a more realistic approach to determining income.

The ability to repay the debt is the number one qualifying criteria on any mortgage loan. It is the underwriter’s responsibility to determine if the borrower has sufficient income to pay the monthly payment and if that income is reliable and verifiable. Underwriting today usually takes the most conservative approach in determining income, for example; bonus, overtime or commission income is not used unless there is a two year history of receipt of that income. If so, the bonus, overtime or commission income is generally averaged over the last two year period. For this reason a borrower with a new job cannot use projected bonus, overtime or commission income to qualify. Lenders use “current” and verifiable historic income for qualifying. A borrower with less than a two year employment history with their current employer will only be able to use his/her hourly or monthly base income to qualify for a loan.

Most lenders will be able to use your new income as long as you've been on the job at least 30 days.  However, the other concern a lender would have is whether or not you've had a lapse in employment before this new job.  If you've been out of work for a substantial amount of time before this new employment, you should notify your lender so that they can let you know what additional information will be needed.  For example, with an FHA loan an underwriters won't want to see more than a 6 month gap prior to going back to work and you'll need to document 24 months of employment prior to the gap in employment.

A few other notes regarding income on an FHA program.  If you've been out of work for 6 months prior to starting this new job, you'll need to be back at work for 6 months on an FHA program.  FHA also requires at least 30 days of YTD income, so be sure to keep your December paystubs.  This will help you in two ways.  First, you will resolve any issues in January since your January paystub won't show 30 days YTD income.  It will also help you if your new employer doesn't send out a W2 until January 31 and/or offer a W2 online.

As a side note, I do know one lender that will use your new income as long as your start date is prior to the first payment on your new mortgage.  That is pretty aggressive and not normal, but it does exist if absolutely needed!

There is no set answer to this question - the lender will determine whether or not your time on the job is sufficient. Most generally, as little as a day or as much as 2+ years.

If you are coming from another position in the same line of work, and you have a documented history of earning a similar wage, the lender may agree to issue you a loan even before you receive your first paycheck, based upon the promise from your employer that a position has been offered and that the income is expected to continue for at least the foreseeable future.

If you have a spotty work history, or are in an industry for which you received no formal training and have no proven experience, the lender may require up to 2 years of work before counting your full income in their underwrite.

I encourage you to speak to a LOCAL lender in your area, and to explain your entire situation carefully - he or she can evaluate your personal history and let you know exactly how much of your current income can be "used"  or "counted" when obtaining a mortgage.