It’s no secret that your lender will verify your employment to qualify you for a loan, but they do this early on in the process. What happens on the day of the closing, though? Will the lender verify your employment again?
Typically, lenders will verify your employment yet again on the day of the closing. It’s kind of a checks and balances system. The lender needs to make sure that nothing has changed since you applied for the loan. In a typical purchase transaction, it can take between 30 – 60 days to get to the closing – that’s a lot of time for circumstances to change.
In addition to your employment, your lender may also pull your credit one last time, again, to make sure nothing changed. So how does the process work? Keep reading to find out.
The Verbal Verification of Employment
Unlike when you first applied for the loan and provided your income documentation, the lender will likely call your employer for a verification that you still work there. They don’t need to see your income documents all over again. They also don’t need your employer to complete a Verification of Employment form. The process is usually quick, with the lender verifying that you still work at the same company and have the same position.
If your employer says that you no longer work there or that you changed positions, it could throw up a red flag in the lender’s eyes. They may put a stop to the closing in order to make sure that you still qualify for the loan.
The Debt Ratios
Your employment directly affects your debt ratios, which is a large part of the qualifying process. If you are close to the maximum debt ratios allowed for a program, your VOE (Verification of Employment) is an important part of the process.
Lenders need to know that you are employed now and will continue to do so for the foreseeable future. For example, if a lender calls your employer on the day of the closing only to find out they are going to be shutting their doors in the next month, the lender won’t’ close your loan. They need to know that you have the best chance of continued employment for the next few years.
What to do if Things Changed
It’s a good idea to assume that your lender will verify your employment on the day of your closing. If something changes, whether of your doing or it was a forced decision, be honest with your lender. Let your loan officer know that you’ve changed jobs. If you’ve lost your job and haven’t gotten another one, you may have to put your loan on the back burner for now until you have another job for at least a few months. If you simply changed jobs, your lender will need to see your paystubs and they will have to get in contact with your new employer to verify your continued employment.
The verification of employment lenders do on your closing day isn’t meant to kill your deal. Instead, it’s just a way to protect the lender and even you from the risk of default. If there’s some type of uncertainty in your income, a lender may not want to give you a loan because your risk of default is high. While it might seem cruel, it’s a way to protect you, as you probably don’t want to go through the foreclosure process either. It’s best to take on a mortgage when you know you can comfortably afford it.