You may have been told that an employment history of two years is necessary to obtain a mortgage. Some people misinterpret this to mean that if they haven’t been employed for longer than 24 months, getting a mortgage isn’t feasible. Such isn’t the case, though.
Lenders take the bigger picture into consideration. They are interested in the odds of you potentially defaulting on your loan. However, if you haven’t been employed for over a couple of years, that doesn’t automatically equate to a potential loan default. The following article will reveal what lenders specifically are looking for when loan applications are reviewed.
2–YEAR RULE
Most lenders prefer applicants to be employed in the same position for 24 months or longer. Those with such tenure are almost certainly a lock for loan qualification. Sticking with the same position tells lenders about your reliability and consistency, and that you are someone who takes their job seriously.
However, some exceptions to this rule can be used to your benefit with regard to employment history.
SAME INDUSTRY, NEW JOB
If you started a job over the last five or six months and remained in the very same industry as your last job, you may be eligible. Lenders are interested in the bigger picture, as eluded to earlier. When you remain in the same field, it is an expression of your aptitude for success.
For instance, if you taught at a particular school district and did so for about four years, but changed districts last year, then your industry will remain the same. You will still be a teacher, as far as the lender is concerned. If you are able to establish why a change in districts occurred – perhaps because of a better position or higher pay – lenders will likely accept it.
However, if your industry and job have changed, then the circumstances are different. At this point, you might have to have a certain length of time put in your new industry. A lender must feel confident that you’re able to succeed at whatever this new venture is. For instance, if you became an accountant after spending years as a teacher, those positions fall under two completely unique industries. Such a radical difference could make lenders uneasy.
NEW INDUSTRY AND JOB
As with the same example mentioned earlier, the teacher–turned–accountant must show that they have been successful in their new position. Doing so without an employment history of two years may prove to be challenging, but it is feasible. If you are able to prove that you have obtained the proper education or training in order to succeed at your job, it can’t hurt. Lenders want to see proof of a recognized training session or education certificate in order to feel confident that you are capable of success.
You might have to put some time into your new job in order to establish history in its industry. Getting approved is possible without a two-year wait. Simply ensure that you have enough proof to show your capacity of succeeding at the new job.
COMPENSATING ASPECTS HELP
Don’t forget – your history of employment isn’t the only thing lenders assess. The bigger picture is what they’re interested in. They will want to know what your down payment amount, debt ratio, and credit score is. The stronger these other qualifying aspects are, the greater the odds will be of receiving approval for your loan.
The following compensating factors are most commonly looked at:
• Low debt ratio – in contrast to gross monthly income, endeavor to keep debts low.
• Higher down payment – add more than just the bare minimum for a loan program (20% or more is a good number to strive for).
• High credit score – endeavor to achieve a credit score of 700 or higher.
The more reliability and stability a lender sees, the less stock they will put into your employment history if you been working for less than 24 months.
For instance, if your credit score is 700, your total debt ratio is 36%, and your down payment is 20%, lenders might overlook a short job tenure. Conversely, if your credit score is 650, your total debt ratio is 43%, and your down payment is 5%, lenders might be concerned about approving a loan request, especially if your employment history is less than two years.
Every lender has their own requirements when it comes to employment history. Research various lenders to find out what is required of you if your employment situation is unique. Remember – offering all the proof you can to show your job success potential will enhance the odds of your approval.