Two years of employment isn’t always needed to buy a house
A strong employment history proves you have a steady income and ability to make regular loan payments.
But not everyone has a long employment history. Maybe you’re a first-time home buyer just starting your career. Maybe you were laid off and recently got back to work.
There are plenty of scenarios where a two-year job history just isn’t realistic. Fortunately, lenders understand this. And they have rules in place to help applicants just starting out in a new job.
In this article (Skip to…)
- Employment requirements
- Get a loan with a new job
- Mortgage without a job
- Qualifying on unemployment
- How lenders view work history
- Loan program rules
- Income requirements
How long do you have to be employed to buy a house?
As a rule of thumb, lenders require two years of employment to qualify for a home loan
Your work history is just one of several criteria underwriters will check when you buy a home or refinance. Your credit score, debt-to-income ratio, and down payment size matter a lot, too.
A shorter or more erratic work history can become an obstacle to homeownership. But it’s an obstacle you should be able to clear — especially if your application is in good shape otherwise.
How to get a home loan without two years of employment
When you apply for a mortgage, the lender wants to know that you can and will repay your new home loan.
That’s why mortgage companies check your credit and income: Your credit rating represents your willingness to repay. Your income shows your ability to repay.
Lenders understand that someone who has worked for less than two years might still be perfectly willing and able to repay a mortgage.
That’s why there are workarounds to the two-year employment rule for qualified applicants:
- You can get a mortgage even if you’re just starting your career: You don’t always need years and years of work experience in order to get a home loan approved. Sometimes, a lender will approve you on the strength of a job offer alone; especially for high-earning positions like physicians and lawyers
- If you’re in-between jobs, you might still get approved for a mortgage: Lenders can approve home loans based on an offer letter for people who are in between jobs or starting at a new company when they move
- You don’t need two years of conventional employment to get a mortgage: Many lenders will consider alternative income information for self-employed, contractors, or gig workers
If you’re looking for a home loan without a long employment history, the trick is finding a lender who’s willing to work with you.
What lenders work with a short employment history?
You might be able to find a lender online, especially if you’re a self-employed borrower looking for a bank statement loan.
However, lenders often prefer to work with borrowers one-on-one when they’re evaluating and approving outside-the-box home loan applications.
So if you want to become a homeowner without two years of employment, you’ll likely have to connect with lenders directly and ask about your options.
Can you get a mortgage without a job?
To approve you for a mortgage, lenders need to know you have enough income to comfortably make the loan’s monthly payments.
This makes it hard — but not impossible — to buy a house without a job. Here are a few strategies worth looking into if you’re currently out of work:
- Qualify based on an offer letter for a new job: Like we mentioned above, it’s possible to get a mortgage if you’re currently out of work but starting a new job soon. Many lenders will approve you based on an offer letter and verification of employment from your future employer
- Qualify based on a partner or spouse’s employment: If you’re unemployed but buying a house with a partner or spouse, you might qualify for a mortgage based on that person’s income and credit alone
- Qualify based on your assets: If you have significant assets, you might qualify for something called an “asset depletion mortgage,” which assumes you’ll make payments by selling or liquidating those assets over time
- Qualify with investment income: Lenders may qualify you for a mortgage based on dividend and interest payments from investments you own. But these will need to be significant if they’re your only source of income for qualification. Learn more here
- Qualify with disability benefits: With many lenders you can use income from a long-term disability insurance policy or from Social Security Disability Insurance (SSDI) benefits. You must show the income will continue for at least three more years
- Qualify with alternative income: Other income sources that can potentially help you qualify for a mortgage include pension and Social Security income, annuity income, and alimony payments
As always, the rules vary by lender. If you’re currently unemployed, your chances at getting a mortgage will depend heavily on your unique situation.
Your best bet? Chat with a few different lenders to feel out your options and what you need to do to qualify for a home loan.
Can you qualify for a mortgage with unemployment income?
In most cases, unemployment income cannot be used to qualify for a mortgage.
If you were laid off and just started receiving unemployment, you’ll have to wait until you start a new job — or at least have an offer letter in hand — to buy a house.
The only exception to this rule is for seasonal workers who have a regular history of receiving unemployment.
- You’re a contract worker who works six months each year and earns $90,000
- You receive unemployment income the other six months of the year
- You have maintained this same schedule and income level for at least two years
- A lender might approve you based on your regular income and unemployment income combined, using the average yearly income over the past two or more years
However, this is a rare scenario restricted to seasonal workers. In almost every other case, unemployment income will not help you qualify for a mortgage.
How mortgage lenders determine your work history
It’s typical for lenders to consider your last two years of employment. But that doesn’t mean you need to have been in the exact same job for the past two years.
Generally, lenders will accept a two-year history of consistent work in the same line of work, if not at the same exact job.
- Example: if you were a staff accountant in the software industry, and changed jobs to be a staff accountant in the medical field, that would be considered an acceptable lateral move by a lender
Then, there are the unconventional but acceptable histories:
- Example: Suppose you spent the last four years completing an accounting degree and worked a couple of temporary accounting jobs during the summer. Upon graduation, you got a full-time accounting position. The fact that you’d been working full-time for only one year probably won’t hurt your mortgage approval chances. In fact, if you’re working in the same field you studied, your education itself might count as a two-year job history
However, a long employment history won’t help if you’ve jumped around between many different jobs and industries:
- Example: You have a 10-year employment history. But you spent a year as an accountant, switched to bartending for a couple of years, then to marketing, and now you’re a personal trainer with six months in the business. All this career movement will raise a red flag for a lender who is looking for a reliable track record of income
In general, your lender just wants to make sure that your household income is stable, and will be ongoing for a period of at least three years.
Employment requirements by mortgage loan type
Each mortgage loan program has its own requirements when it comes to employment history.
If you’re on the edge of qualifying based on your job history, it’s worth looking into different kinds of mortgages to see which one suits you best.
Following is a breakdown of how long you have to be at a job to qualify for each major loan type.
|Loan Type||Job History Required|
|Conventional||Two years of related history. Need to be at current job six months if applicant has employment gaps|
|FHA loan||Two years of related history. Need to be at current job six months if applicant has employment gaps|
|VA loan||Two years or relevant schooling or military service. If active military, must be more than 12 months from release date|
|USDA loan||No minimum in current position; prove two years of work or related history|
Conventional mortgage employment rules
Conventional loans — the most popular type of mortgage — generally require at least two years of employment history to qualify.
However, less than two years may be acceptable if the borrower’s profile demonstrates “positive factors” to compensate for shorter income history. Those compensating factors might include:
- Education: For instance, you have a four-year degree in the field in which you now work. That education almost always counts as work history. New grads typically have no problems qualifying despite a brand-new job
- A letter of explanation for a job change: If you recently changed jobs and changed fields, try to tie them together with a great letter of explanation. Present a case why this new job is just a continuation of your previous one. What skills did you build there that you now are using?
Keep in mind the above applies only to salaried, full-time work. You’ll likely need at least two years of reliable income if you mainly earn bonuses, overtime, commission, or self-employment income.
And if you take on a second, part-time job for extra earnings, you’ll need a two-year history in that job for lenders to count the additional income. There are no exceptions to this rule.
FHA mortgage employment rules
The Federal Housing Administration insures FHA loans which can help borrowers with lower credit scores get better interest rates.
The FHA is also more lenient about work history.
FHA loan guidelines state that previous history in the current position is not required. However, the lender must document two years of previous employment, schooling, or military service, and explain any gaps.
If an extended gap is present, the applicant must be employed in the current job for six months, plus show a two-year work history prior to the gap.
FHA lenders want to see that:
- You are qualified for your current position
- You are likely to remain in that position or a better one in the future
Don’t worry if you have changed jobs frequently in the past two years. This is acceptable as long as each job change was an advance in your career.
Write a letter explaining how each move benefitted your situation — more money, more responsibilities, a company with more opportunity.
As with other loan types, FHA requires two years of documented history of overtime, bonus, and other variable income.
VA mortgage employment rules
VA loans are available only to active-duty military service members, veterans of the military, and some surviving spouses of veterans.
If you qualify for a VA loan, you could borrow with less than two years of employment. The lender documents your work history and requests proof of relevant schooling or military service.
These loans are tougher if you have less than 12 months of employment total (including all jobs). The VA lender may request the probability of continued employment from your current employer.
Additionally, lenders examine past training or relevant experience. The VA requires the lender to prove an applicant has the needed skills for the current job.
For active-duty military service members, VA lenders consider the income stable if the applicant is more than 12 months from his or her discharge date.
USDA mortgage employment rules
USDA mortgages offer many benefits, such as zero down payment requirement and credit score flexibility. And they are also very lenient about employment history.
According to USDA guidelines, there is no minimum length of time applicants must work in their current position before applying for the mortgage.
The applicant must simply document work history for the previous two years. It’s okay if the loan applicant has moved around between jobs. However, the applicant must explain any significant gaps or changes.
If you are a USDA applicant, you must document that you were working toward or obtained a degree via college transcripts during the gap. Or prove your military service with discharge papers.
Both of these factors help satisfy your work history requirement.
While you can qualify for a USDA loan with a new job, you must prove that your current position is stable, so that you can make your mortgage payment long-term.
Also note that to get a USDA loan, your annual income can’t exceed 115% of your area’s median income. And you’ll need to buy a home in a qualifying rural area.
If you’re not sure whether the homes you’re considering can be financed with a USDA loan, check with your real estate agent or use USDA’s lookup tool.
How much income do you need for a mortgage?
Mortgage lenders don’t just look at the length of your employment history. They evaluate your income level, too.
However, the methods most mortgage lenders use to calculate income can put some borrowers at a disadvantage. This is because not all income may be counted as “qualifying” income.
Here’s how most lenders view different types of income when it comes to mortgage qualifying:
|Type of Income||Years History Required|
|Salary||Can use full amount immediately, with offer letter or first pay stub|
|Bonus||Two years’ history required|
|Commission||Two years’ history required if more than 25% of income|
|Overtime||Lender will average two years’ overtime earnings|
|Hourly||Preferably, two years' average will be used if hours fluctuate|
|Second job||Two years’ history of working both jobs simultaneously|
How salary is calculated for a mortgage
When your income is an annual salary, your loan officer divides your annual gross (before tax) income by 12 to determine your monthly income.
In general, you do not need to show a two-year history — especially for jobs that require specific training or background.
How bonuses are calculated for a mortgage
When you bring home an annual salary plus a bonus, your lender calculates your income in two parts.
First, your lender divides your annual salary by 12 to determine your monthly income. Then your lender looks at bonus income separately.
If you have received bonus income for at least two years, and the employer indicates the bonus income will continue, lenders can consider it “qualifying” income.
Underwriters normally divide your last two years of bonus income by 24 months to arrive at a monthly average.
However, as with any income, if lenders see it has been dropping year-over-year, they may choose to discount or even ignore this income.
How hourly income is calculated for a mortgage
Typically, lenders multiply your hourly rate by the average hours you work.
The table below shows Fannie Mae’s guide to income calculations.
|How Often Paid||How to Determine Monthly Income|
|Annually||Annual gross pay / 12 months|
|Monthly||Use monthly gross payment amount|
|Twice Monthly||Twice monthly gross pay x 2 pay periods|
|Biweekly||Biweekly pay x 26 pay periods / 12 months|
|Weekly||Weekly pay x 52 pay periods / 12 months|
|Hourly||Hourly pay x average number of hours per week x 52 weeks / 12 months|
Erratic work hours or recent job changes can harm your income calculation.
Those with little work experience who also earn hourly wages can experience difficulty when applying for their first mortgage.
How overtime pay is calculated for a mortgage
When you earn wages plus overtime pay, your lender totals your prior two years of overtime pay and divides the total by 24. That’s your qualifying monthly overtime pay.
Again, if this extra pay declines over time, the lender may discount it, assuming the income won’t last three more years. And without a two-year history of overtime pay, your lender will probably not allow you to claim it on your mortgage application.
How commission income is calculated (if it’s 25 percent or more)
When you earn at least 25 percent of your income from commissions, your base income is the monthly average of your last 24 months of income.
If you have less than 24 months of commissioned income, your lender probably can’t use it for qualifying.
There are exceptions. For instance, if you work for the same company, do the same job, and earn the same or better income, a change in your pay structure from salary to fully or partially commissioned might not hurt you.
You have to make the argument, however, and get your employer to confirm this.
How self-employed income is calculated for a mortgage
When you are self-employed, mortgage lenders require at least two years of income verified by your tax returns. They then use a complicated form to determine your “qualifying” income.
Understand that your gross revenue (before income tax deductions) is not the figure that lenders use when calculating your qualifying income.
Lenders have been known to make exceptions to this rule — specifically, for recently self-employed persons who have started a business in a “related field.”
It’s not uncommon today for employees to continue working for the same company, switching to “consultant” status, which is self-employment but getting the same or more income. These applicants can probably skirt the two-year rule.
Find out if you qualify for a home loan
You might not have a traditional, two-year employment history. But that shouldn’t stop you from getting a mortgage if you have a steady income.
The key is to find a lender willing to work with you.
Many lenders are more flexible than they used to be. So you have the ability to shop around and make sure you get the best mortgage rates, just like any other home buyer.