Key takeaways
- In general, most lenders look for a solid 2-year work history to establish you have a stable income coming in to cover your new monthly mortgage payments.
- Compensating factors, such as a large down payment, a high credit score, or large cash reserves, can compensate for imperfect work history.
- Lenders may still approve borrowers without a 2-year working history when they have other forms of regular monthly income, such as through social security, pensions, or disability.
Can you get a mortgage without a 2-year work history?
It is possible to get a mortgage without a perfect 2-year work history, depending on your other circumstances, the lender, and the loan program you are applying for. Here are the basic employment guidelines for the most common mortgage programs.
Conventional loans
As the most common mortgage loan type, conventional loans require a minimum of two years of work history as well as being at your current job for a minimum of six months in order to qualify.
VA loans
Designed as a loan option servicing veterans and active duty service members, VA loans are backed by the Department of Veterans Affairs. Like most loan types, a VA loan is looking for at least two years of employment history. However, this can also include the time of service and education. If you are recently separated from service, they will be looking for current employment, or if you have a new job lined up.
FHA loans
Backed by the U.S. Federal Housing Administration and often considered more flexible than conventional loans, FHA loans do not have a specific employment history requirement. However, most lenders still require two years of employment history, as well as six months with your current employer.
USDA loans
USDA loans are backed by the U.S. Department of Agriculture and are a loan option for those looking to purchase a home in designated rural areas of the country. While they also require a 2-year work history, there is no current employer requirement.
Non-qualifying mortgage
Non-qualifying mortgages are mortgages that do not follow the more stringent guidelines set forth for other loan programs. In this case, there is more flexibility when it comes to employment history. However, because these are considered higher-risk loans, you can expect higher interest rates, upfront fees, and points.
Why do mortgage lenders require work history?
When applying for a home mortgage, the goal of underwriting is to help ensure that you have a stable source of income and the ability to make regular monthly mortgage payments. Proof of stable income and job security is one way they do this. A 2-year work history helps show stability, as opposed to someone that changes jobs every few months or has large gaps within their employment history that cannot be explained.
If you do have multiple jobs within a 2-year period, lenders also look for the type of jobs and the reason behind the change. For example, you will appear more stable if you have employer changes if the jobs are in the same industry and show growth, such as a more prominent title and higher income. On the other hand, multiple job changes with drops in pay rates highlight an inability to maintain steady employment.
Requirements to get a mortgage without two years of work history
While it is still recommended to have a solid two-year work history before applying for a mortgage, you can still get a loan application approval without it if you meet other compensating factors. When applying for a loan without a 2-year work history, there compensating factors can include:
- The amount you have available for a down payment. Having at least 10 to 20 percent down decreases your loan-to-value ratio and helps reduce your risk to the lender.
- Your ability to make regular payments. While you may not have a 2-year work history, lenders will still want to see that you have the ability to make your mortgage payments. They will require proof of your current earnings, such as W2s, pay stubs, tax returns, or bank statements. In addition, income can come in from another source, such as real estate rental income, social security, disability, and alimony.
- Credit score. Without a solid work history, you will need a good to excellent credit score to qualify for a home loan.
- Debt-to-income ratio( DTI). Your debt-to-income ratio is the total amount of monthly debt obligations you have in comparison to your monthly income. Without a 2-year work history, you will want your DTI to be much lower than the minimum lender requirement.
- Cash reserves and investments. Do you have cash reserves available to cover six months of mortgage payments? Do you have substantial investments that can easily convert into cash? These compensating factors can make a big difference when you do not have a 2-year work history.
Addressing additional employment history factors
What if you have been employed for two years and can provide a job history to a loan officer, but there are gaps or changes in your employment? Here we take a look at some of the problematic items in your work history that can affect your ability to get a mortgage loan.
Gaps in employment
Gaps in employment can be a red flag to lenders as it shows you do not have a stable income source. While small gaps for a week or two are never really problematic, larger gaps can be a concern. However, with the recent COVID pandemic and lockdowns, larger employment gaps currently have a little less weight in loan decisions. Other times larger gaps can be acceptable, including layoffs, illnesses, welcoming a new baby, or the pursuit of higher education.
Changing jobs
A change in employment throughout your 2-year history can be acceptable or it can work against you, depending on the circumstances. For example, if you seem to bounce around to different jobs every few months that do not provide a pay increase or professional growth, you may be seen as unable to provide steady income. However, if you have changed jobs in order to increase income or for professional growth, such as a promotion, this can be of great benefit when applying for a loan.
Part-time jobs
Part-time employment often requires a 2-year history of part-time work which is then averaged over that two-year period in order to determine the average qualifying income to apply to the mortgage application.
No current employment
If you are not currently employed, it does not necessarily mean you will not qualify for a mortgage. Other sources of income can be considered instead of employment, such as alimony, child support payments, retirement income, rental property income, investment income, social security, and disability.
Rates and fees you should expect without a 2-year work history
When applying for a mortgage without a strong 2-year work history, you may appear as a high risk to the lender. While compensating factors may override the 2-year work history requirement, the lender may still view your application as risky. In this case, you may see slightly higher rates than you would if you had provided an adequate work history. In general, fees tend to be standard. However, you may see a slight increase in fees accessed compared to loans with a strong work history.
Buying a home without a steady work history
Regular unemployment, constantly switching jobs, or even large gaps in your work history can make you appear as a high risk to a lender and can often be enough for a home loan denial. But it doesn’t have to be. By understanding compensating factors and how they can counterbalance a poor work history, you may still be able to qualify and purchase the home of your dreams.
Helping borrowers find the right mortgage
With terms and acronyms like DTI, LTV, and compensating factors, applying for a home mortgage can often be overwhelming. Here at Hero Home Programs, our goal is to help our neighborhood heroes qualify and move into the home of their dreams while taking advantage of all the loan options available to them. If you have a questionable work history, let us help you secure the mortgage you need today. To learn more, schedule a consultation today.
