When you apply for a home loan, you must have sufficient income to cover the monthly payment. However, even if your income is high enough to meet the lender's requirements, most lenders still require you to show that you have been employed for a minimum amount of time prior to your application. The length of time depends on the lender and the type of loan you're applying for.
Fannie Mae determines the guidelines for conventional loans. According to Fannie Mae, borrowers must show a history of at least two years of stable employment. In this case, "stable employment" is defined as employment that produces a predictable income and is likely to continue for at least three years. As long as the income remains the same, it doesn't matter how many employers the borrower has worked for over the two-year period in question. Borrowers with less than 24 months of work history may still qualify for the loan if the lender believes the borrower to be an acceptable risk.
The Federal Housing Administration doesn't require borrowers to meet a minimum employment requirement. However, lenders will examine each borrower's employment history for the two years prior to the loan application to determine whether the borrower earns a stable and predictable income. If the borrower shows any gaps in employment that last more than one month, he must explain them.
The Veterans Administration doesn't publish a specific length of employment that borrowers must prove. In fact, the VA sometimes approves loans for borrowers who are not yet working but can show evidence of future employment. However, the VA approves such loans on a case-by-case basis.
USDA Rural Housing Loan
The United States Department of Agriculture offers rural housing loans that don't require any down payment so long as the home is located in an eligible rural area. To secure this type of loan, the USDA generally requires two years of employment history. Less may be accepted under special circumstances, but the applicant will be required to produce documents to justify the reason. Additionally, some applicants may be required to show more than two years of job experience. This typically happens when a person's income varies by a significant amount each year.
If you are self-employed, the length of employment history you must show depends on the type of loan you are requesting. If you are applying for a conventional or FHA loan, you must typically show at least two years of stable self-employment. To determine your monthly income, the lender will divide your total net income for the last two years by 24. On the other hand, if you are applying for a VA loan, the lender will evaluate your case individually.
- U.S. Department of Veterans Affairs: Guaranteed Loan Processing Manual
- HUD.gov: Mortgage Credit Analysis for Mortgage Insurance
- Fannie Mae: Selling Guide
- The Mortgage Reports: First-Time Home Buyer Guide: Buying With a New Job
- Credit.com: Why Your Job Matters When Buying a Home
- USDA: Chapter 4: Borrower Eligibility
- FHA Guidelines for Employment Gaps
- What Is an FHA Direct Endorsement?
- How Does a Late Payment Affect Car Financing?
- How to Buy a House When Job Security Is Tentative
- Can I Use a Co-Signer to Get an FHA Loan?
- How to Qualify for a Conventional Mortgage
- Does Being Married With a Spouse on the Mortgage Affect FHA Loans?
- Do You Go to a Closing Meeting When You Refinance a Home Loan?