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Can I Qualify for a Home Loan with a Gap In Employment?

Sunday, December 1, 2019 - Article by: Chris - 1st Nationwide Mortgage - Message

It is perfectly normal to be concerned you will not qualify for a home loan if you have a gap in employment. The key issue is the length of being unemployed when you are in the loan buying process. In addition, lenders may want an explanation or the reasons for the gap in employment.

The majority of lenders will demand a minimum two-year history or 24 months of employment. Accordingly, if the break in employment occurred over three years ago, it's unlikely to be an issue.

When is the Break Considered Too Lengthy?A break of six months or more is considered excessive. This standard is applied by FHA underwriters, and has become an accepted rule for conventional loans as well. Some lenders have overlays and draw the line at over three months. For the most part, a gap below six months may not substantially hurt your loan application, whereas a gap every year is probably going to be a serious issue for the lender.

Lenders will look at the two years before the gap to see if your employment was stable up until that point. Temporary disability is considered to be a gap, but lenders will look at your intent and ability to return to work. This also goes for maternity leave and similar.

What Else is a Warning Sign Pertaining To Employment?Lenders will likely not approve a borrower who has changed jobs over three times in the last 12-months and especially changing professions. For example, from accounting to medical surgeon.

Then again, a lender will have no issues if your new employers had higher income or better benefits or if you took training courses in order to obtain the new position. A big income change higher or lower may also be considered a black mark.

Lastly, if you are self employed, they will want to review your most recent two years of income and year to date earnings to ensure that you have dependable income. You will likely obtain an approval according to the lowest income period than the best months.

Do this if You have an Employment GapThe following is what you should do if you have an employment gap of six months or longer:

oWrite a letter of explanation about why the break in employment occurred. Let's say, maybe you returned to school to obtain your Masters degree and found out you were not able to handle studying and working at the same time. Not surprisingly, you left your job to concentrate on your degree for four months. Taking a leave of absence for maternity, caring for an elderly relative, or your employer experienced an abrupt end of business are all great explanations, particularly if you are now in a better position.

oProvide documentation that you paid your rent and mortgage in a timely manner and consistently for several years. This can be very helpful if you are self employed, accept temporary gigs, or have seasonal work like entertainment or construction.

oIf possible, do not change jobs prior to putting in for a loan application. Needless to say, this is not feasible if you have to move. If you do have to change jobs, ask your employer for a position change letter.

oIf you lost a job recently and it wasn't for negligence or firing, ask for a letter from your human resources dept. so you have proof that lets the lender know that you are still a great candidate who can land a job.

In summary, an employment gap doesn't mean you are unable to get a loan, just be ready to provide an explanation letter about the gap for the lender's satisfaction and that you are not a huge risk. The same goes for documents about paying your rent on time and explaining why you left your most recent job.

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