When applying for a home loan, loan applications will ask for you to fill out a 2-year work history. Many borrowers believe that if they don’t have a 2 full year work history, they won’t be able to get approved for a home loan. That’s simply not true! While having a 2-year employment history and a current employer are important pieces to show the lender that you can repay the loan, there is no requirement that you cannot have gaps in your employment during that 2-year span. Whether you were involuntarily terminated from your job or voluntarily quit for any reason, you can still get approved for a home loan, and this article will tell you how!
Why is a “two-year” employment history so important?
When applications request a two-year employment history, you are not required to show your lender that you worked at the same jobs for last two years. Lenders are just looking for employment consistency. Lenders want to know that you can remain consistently employed and repay the loan.
It’s okay to have had multiple jobs over the last two years, even if you have months of unemployment between those jobs. The most important part is that all of the jobs were in a similar line of work or a somewhat related field. For instance, if you worked in sales at a software company and then worked in sales at a computer company, the jobs are sufficiently similar to satisfy any lenders requirement. Having a gap between the 2 jobs will not prevent you from getting approved so long as it’s an acceptable gap period.
What is an acceptable gap period?
Most lenders believe that a gap period between employment can be for any reason as long as it’s less than 6 months. Many Americans now participate in the “gig economy” where they don’t necessarily stay in the same job for years, but instead go from company to company on short term contracts, so short term gaps in employment have become pretty common to see in loan applications.
If you have a gap in employment longer than 6 months, you will need to provide your lender with a letter of explanation providing specific, valid reasons for the gap. The lender will then review your reason along with a variety of other factors such as current employment and credit score to determine your loan eligibility. Maternity leave, company layoffs and disability are all perfectly acceptable and standard explanations for long periods of unemployment. So long as there aren’t too many red flags, such as changing jobs more than 3 times in a 12-month period or large decreases in salary from job to job, you should be able to sufficiently satisfy any lender concerns.
Overall, it’s important to have a lender that is willing to listen to your explanation. You want a lender who can take compensating factors into account to get you approved for a home loan despite your gap in employment.
Keep in mind, your lender is looking for stability in your work history. Does your employment history allow you to bring in a consistent income to cover your mortgage payments? If the answer is yes, then even with gaps in your employment you can get approved for your loan. If you want a lender who is in your corner, give LendFriend a call at 512.881.5099 or apply now and one of our loan officers will be in touch as soon as we receive the application.