Are you looking to buy a home, but have gaps in your work history or just started a new job? See which mortgages you could qualify for.
Your employment history is essential to mortgage lenders for one primary reason: It shows some level of financial stability via steady income, meaning you are more likely to repay your home loan than someone who’s unemployed or jumped from job to job.
Does this mean you’re doomed to be denied a mortgage if you just started a new job or have gaps in your employment history? No, as loans differ in terms of their employment requirements, and some lenders will bypass an incomplete work history if you’re strong in other areas like credit, debt-to-income ratio, and down payment.
Here’s a look at how employment requirements differ amongst four major types of mortgages:
1. FHA Loans
These government-backed loans are popular because they help borrowers with lower credit scores secure mortgages with decent interest rates. And beyond those benefits, FHA loans are also more lenient regarding employment history.
There are two major things that FHA lenders look for regarding employment: First, they want to ensure you’re qualified for your current job. And second, they want to ensure that you’ll remain in your current job or will get promoted to a better position in the future.
When applying for an FHA loan, you do not need previous history at your current job. You will have to document two years of previous work history, though. This can include work, military service, or schooling. If there are any gaps, you will have to explain them, and if one is significant, you will have to be in your current job for six months and show two years of employment history before the gap.
2. Conventional Mortgages
These mortgages are the most popular home loans around, and they typically require a minimum of two years of work history to qualify as a salaried, full-time employee. If you have less than two years of work history, you could still qualify if some of that time was spent attending school or if you have a letter explaining why you changed jobs so frequently.
If you did not work full-time and were not salaried, those exceptions don’t apply, and you will need to show two years of solid work history and steady income if you were self-employed, worked on commission, etc.
3. USDA Loans
Many choose these government-backed home loans because they’re flexible with credit scores and require no down payment. Like FHA loans, they are more lenient on work history.
There is no minimum work requirement at your current position for a USDA loan. However, you will need to show the last two years of work history. If there are any gaps or job changes, that is fine, but you will have to explain them. To get a USDA loan, your income must be below 115 percent of the area median income, so if you make too much, you will not qualify.
4. VA Loans
Members of the military or their surviving spouses may find VA loans to be their best bet. You could qualify with less than two years of work history, but you should at least have 12 months of employment to play it safe. When applying for a VA loan, you must provide proof of military service and any relevant schooling.