It is fairly well known that in order to get any type of loan, including an FHA loan, you need a 2-year job history. Of course, as with every other program, there are exceptions to the rule. If you are at a new job, you will have some more verification to do than someone would have to do if they were at their current job for 2 years or longer. The longer you are at your job, the more consistency you display to the lender and the lower risk you pose to them. A person that hops from job to job shows inconsistencies and is considered a higher risk, but this does not mean that you will not be able to get qualified. Even if you have a new job and want to get FHA financing, you might be eligible, but you will have to prove your previous income in order for the lender to make an accurate decision based on all of your qualifying factors.
Verification of 2 Year Job History
If you have at least two years at the same job, you should have a fairly easy time verifying your employment. The lender will ask that you provide your most recent paystubs (typically 2), the last two years’ W-2s, and your tax returns if you have any bonus or overtime income included in your pay. If your paystubs do not show a hire date on them, the lender may have to perform a Verification of Employment with your lender to determine the length of time you have been at that job. A Verification of Employment is not a difficult thing to get accomplished as long as you provide the lender with the appropriate Human Resources information to get the verification completed. The only time you would not need a VOE done is if your paystubs reflect your hire date; you do not make any commission or bonuses and you sign an IRS Form 4506 for the previous two years.
Dealing with a New Job
If you have a fairly new job, or you just have not been at your current job for the full two years, you will have to provide the lender with a little more verification in order to ensure that you are able to pay the loan back. As stated above, you will have to provide the standard documents that include your paystubs, W-2s and tax returns, in some situations. You will also need to provide a history of where you worked or what you did during the time before your current job. For example, if you were in school or training during that time, you could provide evidence of your attendance there, including the dates. If you have gaps in your employment for other reasons, you will have to provide an explanation to the lender to see if you qualify. A few reasons for a gap in your employment that are typically considered acceptable include:
- Stopped working to raise children
- Stopped working to go back to college
Effective and Stable Income
What the lender and the FHA want to see in order for you to qualify for an FHA loan is effective and stable income. Nowhere in their requirements does it state that you have to be at the same employer for 2 years. What they want to know is that you have probability of continued employment. This can be demonstrated in a variety of ways including:
- A statement from your employer stating your probable continuance at the current job
- Proof of any training or education you have that qualifies you for the position
- Past employment history that shows your qualifications for the job
Even if you have frequent job changes, you might be able to get an FHA loan if you can show that the job changes were to make you better. They cannot be because you were bored at your current job. A better explanation would be that you took a higher paying position or you got a promotion because of specific schooling that you took recently.
Typically, if you have a gap in your employment that spans more than six months, you will have to be back in the job force for at least 6 months before you can apply for an FHA loan. You will also need to be able to show that you had a stable employment history prior to the gap. This history should span at least 2 years. You can prove this history with your tax returns, W-2s, or verifications directly with your previous employer.
When you can Use Commission Income
Commission income is not always considered stable, so it is a gray area for FHA lenders. What they like to see is a full two years of employment with the same job so they can see a regular pattern with your income. According to the FHA, if any commission positions are held for one year or less, they are not eligible to be used as effective income on an FHA loan. In most cases, lenders will not use commission income if it is a new method of payment for you, even if you are in the same job, but went from being paid salary to commission.
Basically, what the FHA wants to see is stability. There is no hard and fast rule that you need to be at the same job with no changes for two years – that is old school mortgage lending. Today, lenders are much more forgiving and flexible when it comes to qualifying borrowers for an FHA loan. As long as you can show an upward trend in your job history, even if there are many job changes, if they are always for a higher position or higher pay, you will be able to use them for qualifying purposes. It is when there are gaps in your employment or small periods of time with commission income that lenders have to get a little pickier when it comes to qualifying for FHA financing.