Your job history & income stability – the difference between a yes and a no

Lenders view mortgages as a long-term partnership. Much like any other partnership, it is each party’s responsibility to perform due diligence before they finalize an agreement. That’s why lenders will dive deep into an applicant's job history and income stability when reviewing their mortgage application. But what exactly are they looking for in these two areas?

Job History

Lenders will usually ask the applicant(s) to provide a job history that includes details from their previous two years (24 months) of work. It is important that borrower’s bring as much available documentation to verify employment and salary. By including pay stubs and tax forms from past and current employers, the bank can easily verify the borrower's employment records and analyze the borrower's financial situation. 

Another key insight that lending companies glean from this documentation is how frequently the applicant has moved between jobs or industries. The greater the number of jobs or industries an applicant has worked over that period, the riskier they may appear to the lender. Banks understand that people switch jobs for various reasons, but they also know that when a change of jobs occurs, a change of income usually takes place with it. 

Income Stability

Lenders prefer to see consistency in an applicant's professional career. Being with the same company for a number of years generally correlates with income stability. Underwriters normally require an individual's debt-to-income ratio, the percentage of monthly income to monthly expenses, below 43%. That number is less likely to fluctuate with borrowers who have consistent incomes. Individuals who frequently change jobs can cause the ratio to fluctuate, raising a red flag for lenders.

Typically, banks will be more forgiving with applicants who have moved between salaried positions, as these roles tend to offer a more consistent income. Hourly wage employees seeking mortgages are usually looked at more closely. These types of positions have varying hours from week to week and make predicting future paychecks more difficult. 

What can you do?

Although your job history and income instability can raise a red flag, everyone has a unique professional career and personal situation. For example, perhaps a job came along with higher pay or maybe the applicant is a recent graduate who changed industries upon receiving their degree. The best way to approach a job or industry change when applying for a mortgage is to be upfront about it. Explaining to the lender why the change in jobs occurred will help. It is also important to bring the new job offer sheet, current pay stub and a detailed description of compensation so the lender can verify the new income. The more information the lender has, the better chance your application has of being approved.

Your job history and income stability provide insight into your past and help lenders to gauge the future. Ultimately, these two factors will become a very important part of the overall approval decision. If you have any questions about how your job history and income stability can affect your individual situation, please contact one of our Mortgage Loan Officers.

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