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How to get a mortgage without a 2-year job history

Gina Pogol
The Mortgage Reports contributor

2 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 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 2-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.

If you find a lender willing to work with you, you can buy a house without much — or any — job history.

Verify your home buying eligibility (Oct 28th, 2020)

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Editor’s note: This article discusses standard employment history rules for major loan programs. Due to COVID-19, some employment verification rules have tightened recently, especially for self employed borrowers. If you have questions or concerns about your eligibility, connect with a lender to discuss your options.

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 loan.

Your credit rating represents your willingness to repay. Your income represents the ability to repay.

However, lenders understand that someone who has worked less than 2 years might be perfectly able to repay a mortgage.

That’s why there are workarounds to the 2-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.

You might be able to find a lender online, especially if you’re a self-employed person 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 get a mortgage without 2 years of employment, you’ll likely have to connect with lenders directly and ask about your options.

Get matched with a mortgage lender (Oct 28th, 2020)

Can you get a mortgage without a job?

To approve you for a mortgage, lenders need to see that you have enough income to comfortably make 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

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.  

Verify your home buying eligibility (Oct 28th, 2020)

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.

For example:

  • You’re a contract worker who works six months each year and earns $90K
  • 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 2+ 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 2-year history of consistent work in the same field.

  • 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 that 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 only been working full-time for a year probably won’t hurt your mortgage approval chances

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. A lender will not see this as 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.

Verify your home buying eligibility (Oct 28th, 2020)

How long you have to be at a job to qualify, by mortgage type

Exactly how long do you have to be in a job to get a home loan?

As with many things in mortgage lending, the answer is “it depends.” The requirements for employment history vary by loan type.

If you’re on the edge of mortgage 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 Employment Length Required
Conventional Two years of related history. Need to be at current job 6 months if applicant has employment gaps
FHA loan Two years of related history. Need to be at current job 6 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 2 years’ work or related history

Conventional mortgage employment rules

Conventional loans — the most popular type of mortgage — generally require at least 2 years 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 that the above only applies 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 earning, you’ll need a two-year history for lenders to consider it.

Verify your conventional loan eligibility (Oct 28th, 2020)

FHA mortgage employment rules

FHA is 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 and that 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.

Verify your FHA loan eligibility (Oct 28th, 2020)

VA mortgage employment rules

VA loans allow you to qualify 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 that the lender prove that an applicant has the needed skills for the current job.

For active military servicemembers, VA lenders consider income stable if the applicant is further than 12 months from his or her release date.

Verify your VA loan eligibility (Oct 28th, 2020)

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 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 he or she 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.

Verify your USDA loan eligibility (Oct 28th, 2020)

How much income do you need for a mortgage?

To get mortgage-approved, it’s not just your job that matters — your income matters, 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’ OT earnings
Hourly  Preferably, two years’ average will be used if hours fluctuate
2nd job Two years’ history of working both jobs simultaneously

How salary is calculated for a mortgage

When your income is an annual salary, your lender divides your annual gross (before tax) income by 12 months to determine your monthly income.

In general, you do not need to show a two-year history — especially for jobs which 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 months 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 that 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 total.

However, as with any income, if lenders see that 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 by 24. That’s your qualifying overtime pay.

Again, if the extra pay declines over time, the lender may discount it. 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, doing the same job, and earning 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 verified income. They then use a complicated form to determine your “qualifying” income.

But understand that your gross revenue (before deductions) is not the figure that lenders use when calculating your qualifying income.

Lenders have been known to make exceptions on 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 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 offer, just like any other home buyer.

Verify your new rate (Oct 28th, 2020)

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