Lenders look at a variety of factors when approving you for a mortgage. Your employment is one of those major factors. In most cases, you need to be employed to get a loan. There are the few exceptions for those borrowers that live off retirement or investment funds, but most borrowers have a job.
Just how long do you have to be at the same job in order for a lender to approve your loan quickly? Keep reading to find out.
The Two-Year Rule
Lenders generally like to see you at the same job for 2 years. It shows lenders that you are reliable and consistent. Staying at the same job reduces the risk of you having any types of gaps in your employment. This increases your likelihood of paying your mortgage on time.
Reliability is also a great factor in getting your loan approval fast. Lenders look at borrowers with at least a 2-year employment history as reliable. The lender knows they can rely on you staying employed and reducing the risk of default on your loan.
Of course, having a 2-year employment history also stabilizes your income, which helps lenders know that you will have the money to cover your mortgage payment each month. Lenders will still look at your income over that time and take a 2-year average if you have fluctuating income, but the stability will help your case.
So does this mean that you can’t change jobs if you want a mortgage? Will a lender decline you the loan if you don’t have a 2-year history? Typically, that’s not the case. Lenders look at your employment history over the last few years to make a decision.
If you did change jobs within the last two years, it helps if the new job is in the same industry as your existing job. It helps even more if you were able to take a higher position or increase your income as a result of the job change. Lenders won’t frown upon your lack of a 2-year history at this employer if you can show a positive change.
If you changed jobs and didn’t stay within the same industry, though, you have some work to do. Some lenders won’t give you a loan until you have a 2-year history in that industry. Others may allow an exception if you can prove that you have what it takes to succeed.
What does it take to succeed? Lenders like to see formal training or education in the new industry. For example, if you went back to school to get a degree in the new industry, you may have the knowledge that it takes to succeed. You don’t necessarily have to go back to school to make this happen, though. You can have informal training that you can prove and still get approved. This may vary by lender, though. If one lender turns you down, don’t be afraid to try another.
Dealing With Other Reasons for Changing Jobs
If you lost your job or had to change jobs for reasons outside of your control, just be ready to explain yourself. Lenders like Letters of Explanation. This is just a written explanation of the reasons you left your job and what you’ve done to better yourself since losing your job.
Lenders like written explanations because it should include plenty of proof regarding how you are overcoming the issue. It gives lenders a clearer picture of what to expect. For example, if your company closed and you were forced out of a job, that’s different from you just up and quitting your job without another job waiting in the wings. If you can prove the steps you’ve taken to get another job, whether that includes going back to school, getting some training, or working with a headhunter, it will show your lender the stability and reliability that you possess, which can bode well for your chances to get a loan.
Each lender has their own requirements regarding employment. Your best bet is to make your employment history as stable and reliable as possible for the quickest answer on your mortgage. If you have a rocky employment history, though, don’t assume you can’t get a loan; it just may take a little more creativity and time to get the approval that you need.