How to Get a Mortgage Without a Two-Year Employment History
You’ve likely heard that you need a two-year employment history to get a mortgage. Many people take this literally and assume if they’ve been at their job less than two years they can’t get a mortgage. That’s not the case today.
Lenders look at the big picture. They want to know how likely you are to default on a loan. If you are at your job for less than two years, it doesn’t automatically mean you’ll default on your loan. So what exactly do lenders look for when qualifying you for a loan? Keep reading to find out more.
WHAT’S THE TWO-YEAR RULE?
Lenders would ‘like’ you to be at the same job for two years. That makes your employment history a no-brainer when qualifying you for a loan. Staying at the same job shows lenders that you have consistency and reliability. You have what it takes to succeed at the job.
But, there are exceptions to the rule that you can use to your advantage when dealing with your employment history.
NEW JOB BUT SAME INDUSTRY
If you took a new job recently, say within the last six months, but it’s within the same industry you worked before, you may qualify. Lenders look at the big picture, as we said above. When you work within the same industry, you show that you have what it takes to succeed.
For example, if you were a teacher at one school district for five years but decided to change districts last school year, you are in the same industry. You are still a teacher. If you can prove why you changed districts, such as taking a higher paying position or a better opportunity, lenders will typically accept it.
Now, if you changed jobs and industries, you are singing a different tune. You may need to show that longer history in the new industry. Lenders need to know that you can succeed at it. For example, if you went from teaching to becoming an accountant, that’s two completely different industries, which could make a lender nervous.
NEW JOB AND NEW INDUSTRY
Using the example from above, the teacher that turned accountant needs to show that he or she can succeed in the new position. Without a 2-year history, that can be hard. But there are ways. If you can show that you received the proper training or education to succeed in the job, it can help. Lenders need proof of official education and/or training that show your likelihood of succeeding at the job.
You may have to jump through a few more hoops or wait until you are at the job a little longer to use a new job in a new industry. It is possible to get approval without waiting two years, though. Just make sure you have ample proof of your ability to succeed at the job.
COMPENSATING FACTORS HELP
Remember, lenders look at more than your employment history. They look at the big picture. This includes your credit score, amount of down payment, and debt ratio. The better your other qualifying factors are, the better chances you have of getting your loan approved.
So what are the most common compensating factors? They include:
- High credit score – Aim for a credit score higher than 700 to use as a compensating factor
- High down payment – Put more than the minimum required for the loan program (More than 20% is always beneficial)
- Low debt ratio – Keep your debts as low as you can be compared to your gross monthly income
The more stability and reliability you show a lender, the less they will care about your less than 2-year employment history.
For example, if you have a 700 credit score, 20% down payment and 36% total debt ratio, a lender may overlook the fact that you’ve been at your job for only six months. On the other hand, if you have a 650 credit score, 5% down payment, and 43% total debt ratio, a lender may worry about approving you for a loan with less than a 2-year employment history.
Each lender has different requirements regarding your employment history. Shop around with different lenders to see what they require if you have a unique employment situation. Again, providing as much proof as you can of your ability to succeed at the job will boost your chances of approval as well.
