Getting around the two–year rule
Having two years of consistent employment is one of the main requirements to get a home loan.
But what if you just started a new job, or recently switched careers? It doesn’t necessarily mean you’re disqualified from home buying.
In fact, according to mortgage advisor Ivan Simental, employment history is just one piece of the puzzle. If you can prove you’re a strong borrower – and not a risky bet for the lender – there are ways to get around a two–year job history. Here’s how.Verify your home buying eligibility (Dec 5th, 2021)
Listen to Ivan on The Mortgage Reports Podcast!
Do you need a job history to buy a house?
Technically, yes, a two–year job history is required to buy a house. This can make mortgage approval difficult for first–time home buyers, or borrowers who had a recent job change.
The good news? There are a few ways around the two–year rule, said Simental on a recent episode of The Mortgage Reports Podcast.
“When a lender is looking at your loan profile, they want to make sure that you are able to repay the loan,” he explained. “There are three main things that they look at: your credit, your income – which includes your employment and your assets – and what you have for a down payment.”
In other words, lenders consider the full picture of your mortgage application. So it’s possible to make up for a shorter employment history by being strong in other areas, like your credit score or your assets.
The exact flexibility will depend on your specific situation, including your career path, your loan program, and the lender you choose. Let’s dive into the details now.
Who can buy a house without a 2–year job history?
“If you have great credit, and you can put down a lot of money or have money in reserves, but you don’t have two years employment history, lenders can make an exception,” Simental said.
The key to those exceptions is having what lenders call “compensating factors” – or items that compensate (and then some) for a negative mark on your loan application.
Compensating factors include things like:
- A very large down payment
- A great credit score
- A low debt–to–income ratio (DTI)
- Lots of cash in savings or assets
- A new mortgage payment that would be the same or lower than what you’re currently paying for housing
If you have one or more of these factors, Simental said, lenders will “see you as a responsible, non–risky borrower” and will be more likely to approve your mortgage.
What’s most important is being able to prove you can afford the monthly payments on your new loan.
Your bank statements, pay stubs, tax returns, or a strong offer letter from a new employer can help with this – even if you don’t have a two–year work history.Verify your home buying eligibility (Dec 5th, 2021)
Mortgage approval is all about consistency
According to Simental, “two years” employment history doesn’t necessarily mean two years at the same job, or even two years employed at all.
Instead, lenders want to see consistency – that you’ve had some sort of income for the last two years and will continue to do so after your loan closes.
“If you’ve had multiple jobs within the last two years, but you’ve been employed for two years in the same line of work or a somewhat related field, we still count that as two years’ consistent income,” Simental said. “It doesn’t necessarily have to be two years at the same job. It just has to be two years of consistent employment within the same or similar field.”
It doesn’t have to be two years at the same job. You just need two years of consistent employment within the same or similar field.
In some cases, schooling can count as employment, too. That’s especially true for high–income professionals like doctors and attorneys. Some new professionals can get approved on the strength of a job offer alone.
Even unemployment income, if it’s earned on a regular basis, can sometimes count toward a two–year job history.
“Let’s say within the last two years, you worked for six months, took unemployment for two months, worked again for six months, and did that on a consistent basis for two years,” Simental said. “We are then able to use that unemployment money as income, because you have been consistently getting unemployment for two years.”
Simental said this approach is common with gig, seasonal, and contract workers who might not have full–time work or steady monthly income.
Flexibility varies by lender and loan program
The exact flexibility you’ll have will depend on your mortgage loan program and the lender you choose.
Employment rules by loan type are as follows:
- With FHA loans and conventional loans, you’ll need two years of employment history and at least six months on your current job
- VA loans require borrowers to have at least two years of employment, schooling, or military service
- USDA loans ask for two years’ work history (though there’s no minimum time in your current position required)
Guidelines also vary by lender, as each company has its own requirements and risk threshold. This is why it’s important to shop around for a mortgage lender – particularly if you’re worried about not qualifying.
“There are plenty of lenders that can and will work with you,” Simental said. “It is up to you to do your homework and your research and find those lenders.”
The bottom line? Don’t give up if you’re not approved right away
Finally, Simental said, if you get rejected, that doesn’t mean you can’t get a loan elsewhere. So keep trying.
“Just because one lender tells you no doesn’t mean that another lender is going to tell you no as well,” he said on the podcast. “It all depends on the bank in their guidelines and how flexible they are with those.”
So if you think you’re mortgage–eligible – whether you’ve worked in the same field for two years, or have a comparable education and work history – apply with a few different mortgage lenders.
Not only could this help you get approved, but it will also help you find the lowest interest rate possible and save money on your new home.Show me today's rates (Dec 5th, 2021)