If there’s one part of your mortgage application that lenders pay close attention, it’s your employment history. After all, this is what affects your income and therefore what pays your mortgage. Lenders want to know that you have a stable job and that it will be there for the long-term or at least the foreseeable future.
What happens if you have a gap in that employment though? Will lenders automatically turn you away?
Luckily, there are ways around it. It’s all about how you handle the information. We discuss your options below.
Why do Lenders Care?
If there’s one thing that shows lenders stability, it’s staying at the same job for a long time. Even if you change jobs, if you do so without any type of gap, you show lenders stability. You show them that you are able to handle your responsibilities and that you are not likely to just head out and leave your job with nothing to back you up.
Typically, lenders want to see that you have been at your job for at least 2 years. Of course, there are exceptions to that rule too, though. If you change jobs but stay within the same industry, lenders often consider it the same job. If you change jobs and completely change industries, though, it could throw up a red flag.
If you change jobs and have a long time in between where you don’t work at all, you throw up an even larger red flag. This shows lenders that you aren’t responsible. But, of course, there could be exceptions to the rule.
Circumstances Outside of Your Control Causing a Gap in Employment
Let’s be honest – there’s no way to predict if you will be at the same job tomorrow, let alone two years from now. There are things that could happen that are outside of your control.
What if the company closes? If you had no warning, how are you supposed to get another job and avoid the dreaded gap? This is one of those exceptions most lenders allow. Of course, it’s not enough to just say that your company closed and you had to take your time finding a new job. You’ll have to supply proof of the company closing. You’ll also have to provide proof of the new job and how you handled yourself in between.
Another common situation is when mothers take a leave to raise their babies. This is normal and will cause a gap in your employment. Again, just a letter of explanation to the lender regarding the gap and you should be in good shape. Ignoring the time you didn’t have employment and not explaining it could leave you with trouble finding a loan. Be honest and let the lender know why you left your job and what brought you back to the working world could allow a lender to overlook the gap and give you the approval you need.
The Letter of Explanation
The one thing any circumstances regarding an employment gap has in common is the Letter of Explanation. You need to be honest with your lender. Let them know about the situations you are in and how you resolved them. Just ignoring the fact that you don’t meet the generic guidelines for most mortgage loans will not be enough for you to get approved.
You’ll need to provide as much explanation as possible. When you can include proof alongside it, you put yourself in an even better position. The more details a lender has, the better chance you have of them granting you the exception you need when you don’t meet the 2-year employment requirement.
The bottom line is that an employment gap isn’t the end of the world as long as you treat it right. Ignore it and don’t explain it and you won’t have an approval anytime soon. Be honest with the lender and provide proof of why you didn’t work and how you got a job and made things better will help you get that approval, though.