If you want an open and shut simple mortgage approval, you need 2 years of steady employment. Of course, you also need a great credit score and low debt ratio. But, focusing on your job alone, a 2-year history is the golden rule.
Two years at the same job shows lenders consistency. It lets them rest assured that you won’t hop from job to job, putting your ability to pay the mortgage at risk. However, if you don’t have that two-year history, you don’t have to worry that you’ll be a renter for the foreseeable future. There are ways around the ‘2-year rule.’
It’s All About Employment Stability
Again, lenders like stability. But, that doesn’t have to mean staying at the same boring job for the rest of your life. You can make changes. Usually, as long as they are for the better (higher income, promotion), lenders won’t have a problem with it. Even gaps in your employment, though, when done right, won’t prevent you from getting a mortgage.
If there’s one thing lenders like, it’s explanations. They see what you did on paper. For example, let’s say you left your current job and were out of a job for 2 weeks before the next job started. On paper, it looks like you had a gap in employment. Without an explanation, a lender might turn you down. However, if you were able to prove that you left your current job in order to take a higher paying position in the same industry, that gap wouldn’t matter as much. You could show the lender the lower paystubs and then the higher paystubs from the new job.
If you are ever in doubt, writing a lender a Letter of Explanation is a great way to get undesirable qualifying factors approved by a lender.
The 2-year job history requirement used to limit people from bettering themselves. Borrowers would think that they couldn’t change jobs for fear of not getting a mortgage approval. This would leave them in dead-end jobs and passing up the chance for a promotion or job change.
Today, it’s all about consistency. You can change jobs and not have to wait the illustrious two years to get a mortgage. The key is if the job is in the same industry as your first job. Let’s say, for example, you are a real estate agent. You work for Company A. After about 9 months, Company B offers you a real estate management position for higher pay. You know you want to apply for a loan in the next six months so you worry about what to do.
Because the job is in the same industry and the income is higher, you are in good shape. The lender will see that you bettered yourself and won’t make you wait until you are at your new job for two years.
Now, let’s look at an example that might not work as well.
Using the same real estate agent position, let’s say you decide to work as a delivery person for your dad’s trucking company after six months. The pay is about the same, but the industry is totally different. There’s not a lot for the lender to rely on in this case. You don’t have experience as a delivery person, so how does the lender know you will stay and succeed at that job? They don’t, so they may not be as willing to offer you a loan until you are at the new job for a longer period.
Proving the Reason for the Change
There is an exception to the rule, though. Let’s say you did completely change industries. Maybe you went from real estate to nursing. That’s a drastic change. But, if in between there you went to school (which you’d have to for nursing), you could prove to the lender that you have the background to succeed at the job. That’s all they want to see – they need some type of reassurance that you qualify for the job and will succeed at it.
If you took a job where you have no experience and have had no training, you put the lender in a tough spot. They don’t know what will happen moving forward. Your job could be a total flop, which could lead you to defaulting on your mortgage. This is the risk the lender tries to avoid.
The bottom line is that 2 years of employment is the ‘golden rule.’ It doesn’t mean that’s all lenders allow, though. You’ll find lenders that don’t enforce it at all or those that will grant exceptions as long as your income is similar and the industry the same. If you do change industries, make sure it’s for good reason. You have the experience, knowledge, or education to succeed in the industry. The more proof you can provide the lender, the better your chances of approval.