It’s a common myth that you need 2 years of employment in order to secure an FHA loan. You don’t need to be at the same job for two years and you don’t even need to be in the same career for two years. If you can meet the FHA guidelines regarding employment and career changes, you may still have a chance at securing an FHA loan.
Keep reading to learn the FHA’s rules.
Looking at the Last Two Years
The FHA requires lenders to look back at the last two years of employment. They aren’t looking for you to be at the same job or even to have the same income. What they want to see is your history and how it all comes together.
How Often Can you Change Jobs?
The FHA allows job changes even within the last two years. They don’t throw up a red flag until you change jobs more than three times in the last 12 months. That’s a sign that something is amiss. The lender will need explanations regarding the employment changes. In addition, the FHA requires that you have a higher credit score than the minimum 580 that they allow. In other words, the FHA needs compensating factors to ensure that you are a good risk.
Can you Change Careers?
Lenders don’t like to see that you’ve changed careers in the last 12 months or even two years, but it doesn’t have to be a deal breaker. Typically, if you changed careers within the last year, you’ll have to provide the lender with proof of your training. The lender/FHA needs to know that you will succeed at the job.
For example, if you were an accountant and you changed careers to become a real estate agent, you need proof that you can succeed. Without proper training/schooling, being a successful real estate agent may prove to be difficult. Now, if you have the proof of schooling/training along with some time in the new career with stable income, the lender may be able to overlook the career change.
What About Gaps in Employment?
Gaps in employment always seem to be the deal breaker when securing a mortgage, but they don’t have to be. Again, the more explanation and/or proof that you have, the more likely you are to qualify for the mortgage.
There’s an exception, though. If your gap in employment is more than 6 months long, the lender cannot use the income prior to that point. Here’s an example:
You had a job for four years, but then left it and didn’t have a job for 8 months. You’ve now had a new job for seven months. Typically, lenders would take a 2-year average of your income to qualify you for the loan. Because you were unemployed for longer than six months, though, they can only use the income from the last seven months, at your new job.
This can hurt you if it’s an hourly or commission position. If you work on a straight salary, it won’t hurt your average as much. No matter the job, you must be at it for at least six months in order to qualify for the loan with the gap in employment, though.
Do Compensating Factors Help?
What you need to realize is that when a lender evaluates your loan application, they look at the big picture. They don’t focus on the fact that you had a gap in employment or that you are at a new career. Instead, they look to see how it plays into the big picture.
For example, what’s your credit score and credit history like? Do you have training for the job you are at now? Do you have a lot of debts that put your debt ratio near the maximum? Are you putting money down on the home?
These factors all add up and are compensating factors. The most common factors lenders look for include:
- High credit scores
- Low debt ratios
- Stable income (employment)
- Reserves (assets on hand)
- Putting your own money down on a home (not a gift)
The lender takes all of these factors and decides if you are a good risk. It seems complicated and it seems like one issue, such as less than a 2-year employment history, but lenders really look at everything to decide how to proceed with your loan application.