If you have a gap in your employment history, you’re not alone. A 2023 survey from Indeed Flex, an employment marketplace, found that 68% of workers have a gap in their work history. While lenders may prefer borrowers with a perfect two-year employment history, homebuyers with an employment gap can get a mortgage if their overall finances are strong enough to compensate.
Key Takeaways:
- Borrowers with otherwise steady finances can get a mortgage without a perfect work history.
- Explain the circumstances around any employment gap to your lender, so they can evaluate it in context.
- You can compensate for an employment gap by improving your credit score, reducing your debt, and making a larger down payment.
Can You Get a Mortgage Without a Perfect 2-Year Employment History?
Yes, you can get a mortgage if there’s a gap in your job history in the past two years.
”Not everyone has a perfect two-year job history, and that’s OK,” says Alex Shekhtman, CEO and founder of LBC Mortgage in Los Angeles. “While having a steady job history can help, it’s not the only thing lenders consider. We also check your income, credit score, and general financial stability.”
Mortgage lenders generally are accepting of these common reasons for gaps in an applicant’s work history:
- Taking time off to care for a new baby.
- You were laid off.
- You returned to school.
- You were sick or injured.
- You dealt with a death in your family.
Why do lenders require a 2-year work history?
A record of steady employment and stable income shows lenders you’re a responsible borrower and improves your chances of getting mortgage approval.
The most popular mortgage loan in the United States is the conforming conventional loan, which meets certain standards set by the government that allow lenders to reduce their risk by selling those loans to the government-sponsored enterprises Fannie Mae and Freddie Mac. A two-year employment history for borrowers is required for a conforming loan, with other loan types — like those backed by the Federal Housing Administration, Veterans Affairs, and U.S. Department of Agriculture — following suit.
How Lenders Evaluate an Employment Gap
Factors lenders consider when evaluating an employment gap include:
- How long was the gap? if your employment gap lasted six months or less and you’re now employed again, you’ll still be able to qualify for a mortgage. If the gap lasted longer than six months, then you typically will need to have been employed for at least six months at your new job before applying for a mortgage.
- How long ago was the gap? More recent gaps will give lenders pause, while gaps from a few years ago are considered less alarming.
- Are you now employed? Lenders will typically ask to see verification of employment and wage documents. Recent graduates can use their time in school in place of employment history.
How To Compensate for an Employment Gap
If you’re trying to get a mortgage without that perfect two-year employment history, here are some steps you can take to strengthen your application and boost your chances of getting approved:
- Strengthen your credit score. Lenders look to your credit history to gauge how reliable you are as a borrower based on how you managed debts and payments in the past. To get a conventional loan, you’ll need a credit score of at least 620, while the credit minimum for an FHA loan is 500.
- Improve your DTI ratio. Your debt-to-income ratio is a figure that reflects how much of your income is gobbled up by paying existing debt. Lenders use your DTI ratio to help determine whether you can afford your mortgage. You can calculate your DTI ratio by adding up your monthly payments, dividing that by your gross monthly income, and multiplying by 100. To get approved for many mortgages, your DTI ratio will need to be 43% or lower.
- Include proof of strong assets. Lenders will also look to see if you have assets that could be liquidated if there’s an interruption in your income. The more assets you have, the less risky you’ll appear.
- Include proof of other income. If you have additional streams of income beyond your primary job, let the lender know about that money, too.
- Include proof of cash reserves. If you have a considerable, prudent reserve of cash saved in the bank, this lets the lender know you’ll have an easier time keeping up with your monthly mortgage payments.
- Include proof of other investments. You might have some of your money in stocks, bonds, or other investments so that you can use that money to make more. Give the lender a look at your investment portfolio to see what kinds of stocks you’re holding and what dividends you’re earning.
- Save for a larger down payment. Conventional loans require you to make a down payment that’s at least 3% of the purchase price. However, if you want to avoid paying for private mortgage insurance, then you’ll need to make a down payment of at least 20%. In general, the larger your down payment, the lower your interest rate — which can mean lower monthly payments and less total interest you’ll have to pay.
You still need to provide recent pay stubs and may be asked for documentation showing your finances are in good shape. For example, the lender may ask you to prove you’ve paid your rent on time for the past year or two.
Can You Get a Mortgage If You Change Jobs During the Application Process?
How does changing jobs during the homebuying process affect your ability to get approved for a mortgage? The answer depends on how the job change affects your income, and how much of a change it will be.
“Changing jobs while applying for a mortgage is a common concern, but it’s not a deal-breaker,” Shekhtman says. “Just keep your lender in the loop to make sure your financial situation stays stable.”
If you’ve changed your job more than once in the past two years, that can affect your ability to get a home loan. If your job changes were due to professional growth and increases in pay, it can improve your odds of getting a mortgage. But if the job changes did not show your career is on the upswing, that suggests your income isn’t stable, and that you might be a risky person to lend money to.
“If you’ve switched jobs multiple times in the last two years, it might raise questions, but it doesn’t mean you can’t get a mortgage,” Shekhtman says. “We look at the big picture. Explaining why you changed jobs and demonstrating financial stability can still lead to approval.”
FAQ: How To Get a Mortgage Without a Perfect 2-Year Employment History
Here are answers to some common questions about getting a mortgage without a perfect two-year employment history.
Yes. An asset depletion loan is a way to use your liquidated assets to get a mortgage. Asset depletion loans allow for the value of your assets to be divided up and used in place of income. However, because this loan type requires the lender to take on more risk, they typically come with higher interest rates and down payment requirements.
Yes. It is possible to get a mortgage without a perfect one-year employment history if you explain your employment gap to the lender and meet or exceed all other requirements.
If you’ve already been approved for a mortgage, then you don’t need to report your employment change to your lender. What matters is that you have enough income to keep up with your monthly mortgage payments.
The Bottom Line on How To Get a Mortgage Without a Perfect 2-Year Employment History
When you apply for a mortgage, lenders look into your employment history and review your tax returns and pay stubs from the past two years. If you don’t have a perfect two-year employment history, it’s still possible to get a mortgage and buy a home — you just need to show a lender that your finances are stable and you can afford the loan. Lenders also will consider your credit history, assets, DTI ratio, and other factors to determine whether you’ll be approved.
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