Effect of Employment Gaps on Mortgage Approval
A borrower’s employment history is an important aspect of the mortgage loan application process. Such loans are typically for large sums of money; therefore, lenders want to reduce the risk of default from the borrower by ensuring they have a stable two-year history of employment. Steady, continuous employment gives lenders a strong indication that a borrower will be consistent in making their mortgage payments in full and on time. A borrower who has a history of unemployment may have to explain such gaps in employment in order to reassure their mortgage lender enough to receive approval.
Employment Gap Exceptions
If you do have a gap in employment, there are some exceptions that may not hurt you. These include:
- Maternity leave (about six months)
- Completing your degree or returning back to school
- Company layoffs
- Filing temporary disability
If any of these gaps should apply to you, you may not have a problem when applying for your mortgage loan. A major factor that may affect the approval of a mortgage loan is an unemployment period of more than six months. Having a previous gap of employment over two years prior to applying for a mortgage loan does not need to be disclosed as most lenders only require a two-year work history.
Employment Gap Red Flags
While there are acceptable employment gaps, there are also ones that send off a red flag to mortgage lenders. In turn, these instances can lead to you having a harder time of being approved. Some examples of this would be:
- Frequent job changes (more than three in a 12-month period)
- Employment history of less than two years
- Recent large increases or decreases in your income
How to Explain and Document Employment Gaps
One way to increase your chance of having your mortgage application approved is to be honest with your lender. You can do this by adding explanations and documentation about any employment gaps that have lasted more than six months. For example:
- If you went on maternity leave, you can provide work documents that give detail about your time off.
- If you went back to school, a transcript for each semester is good documented proof.
- If you took time to care for a family member, writing a letter surrounding your circumstances may suffice.
In each case, a lender just wants to see how you will manage the situation in the future while working.
The most important thing a lender is looking for is work history stability. Proving that you can be reliable for bringing in a consistent income for your mortgage payments is what the lender cares about. Even if you do have employment gaps, this obstacle can be overcome.
Butler Mortgage Will Work With You
Regardless of your past work or financial history, the professionals at Butler Mortgage will work with you to find the right loan solution. We have been working with seasoned homeowners and first-time buyers in the Central Florida area for over 25 years. You can fill out our free consultation form online or call us today at 407-931-3800 to take the first step in purchasing a new home.