How important is stable employment when applying for a loan?
Stable employment is a crucial factor in the mortgage approval process. Lenders value Massachusetts borrowers with consistent job histories since they demonstrate financial reliability. A steady job ensures a reliable income, reducing the risk of borrowers failing to meet their financial obligations. While it’s just one aspect of a broader financial picture, borrowers who have remained with the same employer for at least two years often receive more favorable consideration during mortgage approval and can secure the best mortgage rates.
So, can you still get a mortgage if you haven’t been at the same job for two years or are one of many people working in the gig economy? Well, the short answer is yes, but there are some things you need to know to make it happen!
Why is stable employment important when applying for a mortgage?
Stable employment is the cornerstone of obtaining mortgage financing. Stable income supports the Federal Ability to Repay requirement under Regulation Z of the Truth in Lending Act; these rules went into effect after the mortgage crisis in 2008. The Ability to Repay standard means that the lender must demonstrate that the borrower can afford the payment, along with other debt obligations, and that the income used to qualify is expected to continue for the foreseeable future (minimum of 3 years).
It’s important to clarify a common misconception-stable employment does NOT mean that a borrower must be at the same job for two years. The key is that the employment history should make sense and be explainable!
“If a borrower is in a particular industry and goes from one position to another in the same industry, this will not have a significant negative impact. If you are an accountant at one firm and move to another firm, this does not indicate employment instability, said Barbara Mancovsky, Senior Loan Officer at Mortgage Equity Partners. “As long as the change makes sense and can be explained, there should be no problem!”
However, if the borrower is changing jobs in the middle of financing, the borrower should definitely speak with their loan officer about the change as soon as possible. If the income goes down, that may be a concern; it is rarely an issue if the income goes up. Keep in mind that the lender will always use the most conservative numbers for income analysis.
It is different for borrowers who have multiple jobs. In those cases, the borrower would need to have two full years of history of carrying multiple jobs at the same time – consistently. In some cases, it doesn’t have to be the exact same employer. The main thing here is consistency.
Can I get a mortgage as a gig worker?
For self-employed borrowers, such as business owners or ‘gig workers’ (e.g., traveling nurses, consultants who receive a 1099 instead of a W2, and freelancers), there are specific requirements. They must have filed at least two years of Federal income taxes before their income can be considered. If a borrower hasn’t filed for the most recent two years, Mortgage Equity Partners (MEP) does offer financing options, but these have different requirements, and you would want to work with an experienced loan officer to see what makes sense in this scenario.
Overtime and/or bonus income must also have a consistent two-year history to be used, and it cannot be used at all if there is a change in employers. Also, during the verification process, the employer must confirm that the overtime and/or bonus is expected to continue.
Other sources of income, such as pensions or annuities, will have different requirements depending on the source and the loan program and may require a more in-depth conversation with a licensed loan officer.
“A good piece of advice for any potential homebuyer is to get pre-approved. Not only will this tell you how much you can afford, but it will also answer a lot of these approval questions before you start looking at homes with your realtor,” said Mancovsky, “And trust me, your realtor will love you for it.”
Stable employment is a cornerstone of the Massachusetts loan approval process but not a deal breaker. There are some commonsense guidelines created to accommodate workers in all fields who are compensated in different ways. While a 2-year job history is the standard, remember that if your employment history makes sense and you can explain any inconsistencies, you should still apply for a mortgage. But please try not to change jobs when you are in the middle of applying for financing. If this should occur, you would need to contact your loan officer immediately to ensure there is no delay in getting your mortgage approved and closed on time.
To learn more about Reg Z, the Ability to Repay rule, visit ConsumerFinance.gov.
If you still have questions about getting a mortgage and your prior work history, contact one of our knowledgeable loan officers today!
