How Employment Gaps and Changes Impact Mortgage Applications

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Within the vast majority of mortgage application situations, one major area lenders will look at when assessing a potential borrower is employment history. For those who have major gaps or significant issues with their recent history of employment, there could be situations where this causes some concern.

At VIP Mortgage Inc., we’ll happily walk you through the process of obtaining mortgage rates and completing a mortgage application even if you have some employment issues. Today’s blog will look at the periods generally defined as “extended absences” within the home loan world, some other potential employment concerns and how you can ensure these don’t get in the way of your application.

General Extended Absence Range

In most cases, mortgage lenders consider anything above six months to be an extended employment absence. This definition is used by the FHA for their loan program, and has been adopted by much of the rest of the home loan industry as well.

So if you have a gap of three or four months in the recent past, it’s not likely to impact your mortgage application. If it’s been a year and a half, on the other hand, this could be a problem.

One additional note here: Temporary disability situations and areas like maternity leave are considered to be gaps in employment, but lenders to account for intent and ability to return to work. As long as you can provide basic proof of your inability to work during a given period, you should be in the clear.

Other Employment Concerns

There are a couple other employment-related areas that could impact mortgage applications:

  • Frequent job changes: If you have changed jobs more than three times in the last 12 months, lenders may view this as a red flag. If the changes are moves to better, higher-income jobs, on the other hand, or if you’ve gone back to school to train for a better position, this will be looked upon more favorably.
  • Large income change: A major income change in either direction may also raise some eyebrows.
  • Self-employment: If you are self-employed, you will need to be able to provide two years of proof of income – and be aware that lenders will usually look at your lowest-income months and use these to approve the rates and amounts.

Be Prepared

If you fit any of the situations we’ve described here, the first step is to be prepared to explain the circumstance. If possible, utilize documentation that showcases the reason for your absence or job changes, plus proof you’ve still been paying rent or a prior mortgage on-time despite your work absences. In addition, if you can prove that a recent job change was not because you were fired for cause, this shows lenders you’re more likely to find another job quickly.

For more on how to handle gaps in employment when applying for a mortgage, or to learn about any of our mortgage broker services, speak to the staff at VIP Mortgage Inc. today.

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