FHA Requirements on Employment and Income

It’s not always necessary to work for two years In order To purchase a house. A history of employment demonstrates that you have a consistent income and the ability to make regular loan payments. Not everyone, however, has a long professional history. You could be a first-time home buyer starting your career. Perhaps you were let go and have recently gotten back to work.

There are a variety of instances where two-year employment history is just not feasible. Fortunately, lenders are well aware of the situation. And they have policies in place to assist individuals just getting started in their careers.

As a rule of thumb, lenders demand two years of work experience to get a mortgage. Your work history is only one of several criteria that underwriters will consider when you buy a house or refinance. Your credit score, debt-to-income ratio, and deposit amount are also crucial. A lack of work experience or a more volatile employment history might be a stumbling block to homeownership. However, it should be easy for you to overcome — especially if your application is in excellent condition otherwise.

FHA Requirements on Employment and Income

As a rule of thumb, lenders demand two years of work experience to get a mortgage. Your work history is only one of several criteria that underwriters will consider when you buy a house or refinance. Your credit score, debt-to-income ratio, and deposit amount are also crucial. A lack of work experience or a more volatile employment history might be a stumbling block to homeownership. However, it should be easy for you to overcome — especially if your application is in excellent condition otherwise

How Do I Get A Mortgage Without Two Years Of Employment?

The lender wants to know that you can and will pay off your new house loan when you apply for a mortgage.

That is why mortgage lenders do credit checks and verify your income: Your credit score reflects your willingness to pay back. Your financial standing indicates how capable you are of repaying your debts. Lenders recognize that someone who has worked for less than two years may still be willing and able to pay a mortgage.

That’s why there are workarounds to the two-year employment ban for qualified individuals:

  • You can get a mortgage even if you’re just starting your career: You do not always need years of work experience to get a mortgage approved. A lender may approve you on the basis of a job offer alone, particularly for high-earning occupations such as physicians and attorneys.
  • If you’re in-between jobs, you might still get approved for a mortgage: When people move between jobs or start at a new firm, they may be eligible for home loan approval based on an offer letter.
  • You don’t need two years of conventional employment to get a mortgage: Alternatives to income information, such as self-employment, contractors, and gig workers, may be considered by lenders

Finding a lender that is willing to work with you if you want a mortgage without a lengthy employment history might be difficult.

What Lenders Are Willing To Work With A Limited Employment History?

You might be able to find a lender online, especially if you’re a self-employed borrower looking for a bank statement loan. However, lenders often prefer to work with borrowers one-on-one when they’re evaluating and approving outside-the-box home loan applications. So if you want to become a homeowner without two years of employment, you’ll likely have to connect with lenders directly and ask about your options.

Is It Possible To Obtain A Mortgage If You Don’t Have A Job?

Lenders must be confident in your ability to make the monthly payments on a mortgage before they will approve you.

Even if you have a steady income, there are still many ways that purchasing a home could be difficult. This makes it challenging — but not impossible — to buy a house without work. If you’re unemployed now, here are some options worth exploring:

  • Qualify based on an offer letter for a new job: It’s possible to acquire a mortgage if you’re currently unemployed but planning to get a new job soon. Many lenders will accept you based on an offer letter and proof of employment from your prospective employer.
  • Qualify based on a partner or spouse’s employment: If you’re unemployed but purchasing a house with a partner or spouse, you may be eligible for a loan based on your partner’s or spouse’s earnings and credit alone.
  • Qualify based on your assets: If you have a lot of assets, you might be eligible for a “asset depletion mortgage,” which assumes you’ll sell or liquidate them over time in order to make payments.
  • Qualify with investment income: Lenders may qualify you for a loan based on dividends and interest payments from stocks you own. However, if they’re your only source of income for qualifying, they’ll need to be significant. Find out more here.
  • Qualify with disability benefits: Many lenders accept income from a long-term disability insurance policy or Social Security Disability Insurance (SSDI) payments. You must demonstrate that your earnings will last for at least three additional years.
  • Qualify with alternative income: Pension and Social Security payments, annuity income, and alimony payouts are all examples of additional sources of money that might aid you in obtaining a loan.

The parameters for obtaining a mortgage are determined by the lender, and they vary from borrower to borrower. If you’re unemployed now, your prospects at obtaining a loan will be influenced by several factors.

What are your options? Your best bet is to chat with a few different lenders and figure out what you need to do in order to qualify for a house loan.

Is Your Income High Enough To Get A Mortgage While Unemployed?

In most cases, unemployment compensation cannot be used to get a mortgage. If you were laid off and got unemployment benefits, you’ll have to wait until you get new employment or have an offer letter in hand before purchasing a home.

Seasonal workers who have a long history of getting unemployment are the only ones who qualify for this exemption.

For example:

  • You’re a six-month contract employee who gets paid $90,000 per year.
  • The other six months of the year, you get unemployment compensation.
  • For at least two years, you’ve kept to the same routine and revenue level.
  • Using the previous two or more years’ typical yearly income, a lender may approve you depending on your average yearly income over that period of time.

Seasonal workers are the exception, but this is a rare case. In almost every other scenario, unemployment compensation will not enable you to receive a mortgage.

How Do Mortgage Lenders Calculate Your Work History?

It is quite typical for lenders to look at your last two years of employment. That does not, however, imply that you must have worked in the same position for the previous two years.

Lenders generally accept a two-year history of constant employment in the same line of work, unless at the same exact position.

  • Example: If you were a software support accountant and switched jobs to work as a medical support accountant, that would be regarded as an acceptable lateral move by a lender.

Then, there are unconventional yet acceptable histories:

  • Example: Consider this scenario: You spent the last four years studying accounting and worked a few part-time accounting internships during the summer. Upon graduation, you found a full-time accounting job. The fact that you’d been working full time for just one year most likely won’t hurt your mortgage application prospects. In reality, if you’re working in the same field as your education, your education itself may be seen as two-year work history.

However, if you’ve switched jobs frequently or worked in numerous industries and sectors, a lengthy employment history won’t help:

  • Example: You’ve worked for 10 years. You spent a year as an accountant, then bartending for a few years, then marketing for a while, and now you’re a personal trainer with six months of experience in the industry. A lender will raise concerns about your track record of earnings if he or she sees that you have changed jobs frequently throughout your career.

In general, your lender just wants to ensure that your household income is consistent and will continue for at least three years.

Mortgage Loan Types And Their Employment Restrictions

When it comes to employment history, each mortgage loan program has its own set of standards. If your employment history is on the brink of qualifying you, consider looking at alternative types of loans to see which one works best for you. Following is a breakdown of how long you have to be at a job to qualify for each major loan type.

Conventional Mortgage Employment Rules

Conventional loans, which make up the majority of home loans, typically need two years of employment history to qualify. However, duration of fewer than two years may be acceptable if the borrower’s profile shows “good factors” to balance out a shorter income history. These compensating elements might include:

  • Education: You have a four-year degree in a subject in which you are currently employed. That training almost always counts as work experience. Despite having just started working, new graduates frequently fail to qualify due to their fresh employment.
  • A letter of explanation for a job change: If you just changed jobs and fields, try to tie them together with a compelling letter of explanation. Make the case that this new position is simply a continuation of your old one. What talents did you develop there that you can now put to use?

It’s important to remember that the rules above only apply to full-time, salaried employment. If you mostly receive bonuses, overtime, commission, or self-employment earnings, you’ll probably need at least two years of consistent income.

If you take on a second, part-time job to make more money, lenders will need two years of history in that role for them to count the extra money. There are no exceptions to this rule.

Mortgage For Millenials

FHA Mortgage Employment Rules

The Federal Housing Administration protects FHA loans, which may help individuals with poor credit histories obtain better interest rates. The FHA is also more lenient about work history. The FHA loan requirements state that employment history in the current position is not necessary. However, the lender must document at least two years of previous employment, education, or military service and explain any gaps. The applicant must work continuously for six months after the gap, as well as provide a two-year work history prior to it.

FHA Lenders Want to See:

  • You are qualified for your current role
  • You’re likely to stay in that position or improve upon it in the future

Don’t worry if you’ve changed jobs a lot in the last two years. As long as each transition was beneficial to your career, it’s fine.

Explain how each move assisted your position, more money, greater responsibilities, and a company with more potential in a letter.

FHA borrowers must show two years of documented earnings history, similar to those with other loans.

VA Mortgage Employment Rules

Only active-duty military service members, veterans of the military, and certain surviving spouses of veterans are eligible for VA loans. You may borrow for less than two years of work if you qualify for a VA loan. The lender verifies your employment history and asks you to provide proof of education or military service.

If you’ve worked only a few months, your credit is still being checked. If you have less than 12 months of employment total (including all jobs), the chances are that your loan will be more challenging. Your existing employer may be asked to provide proof of future employment for the VA lender.

Additionally, lenders look at past training or previous experience. The VA requires lenders to demonstrate that an applicant has the necessary abilities for the current occupation. The income of active-duty military service members is considered stable if they are more than 12 months from their discharge date, according to VA lenders.

USDA Mortgage Employment Rules

USDA loans have several advantages, such as no down payment requirement and credit score adaptability, which are rarely seen in the market. They are also far more tolerant of employment history than private lenders.

There is no minimum length of time that applicants must work in their current position before applying for a mortgage, according to USDA guidelines. The borrower must simply provide documentation of employment for the previous two years. It’s fine if the loan applicant has changed occupations. However, any significant gaps or modifications should be explained.

If you applied for a USDA loan but did not obtain one, you must show that you were working toward or obtained a degree during the gap. Alternatively, provide military discharge papers to verify your service. Both of these elements assist you to fulfill your work history requirement. While you may be able to obtain a USDA loan after getting a new job, you must show that your present position is stable in order to make long-term mortgage payments.

Also, keep in mind that to obtain a USDA loan, your annual income must not exceed 115% of the median income in your region. You’ll also need to buy a house in a qualifying rural area. If you’re not sure whether your property qualifies for a USDA loan, contact your real estate agent or utilize USDA’s lookup tool.

How Much Money Does It Take To Finance A Home?

Mortgage lenders don’t simply consider your work history when determining whether or not to grant you a loan. They also take into account your income level. However, the techniques most mortgage lenders employ to determine income may put certain consumers at a disadvantage. This is due to the fact that not all of one’s earnings might be regarded as “qualifying” money. Here’s how most lenders view different types of income when it comes to mortgage qualifying:

How Salary Is Calculated For A Mortgage

When you have an annual salary, your loan officer divides your yearly gross (before tax) income by 12 to arrive at your monthly payment.

In general, it is not necessary to submit a two-year work history for most posts that need specialized training or experience.

How Bonuses Are Calculated For A Mortgage

Your lender calculates your yearly income in two parts when you earn an hourly wage plus a bonus. Your lender calculates your monthly income by dividing your annual salary by 12. Then, in addition to regular pay, your employer may contribute a bonus to your account. If you have received a raise for at least two years and the employer states that the bonus pay will continue, lenders can consider it “qualifying” income. To calculate your bonus income over a two-year period, underwriters divide it by 24 months. However, if lenders view it as a declining yearly amount, they may decide to discount or even ignore it.

How Hourly Income Is Calculated For A Mortgage

The typical approach is to multiply your hourly rate by the average hours you work. The table below presents a Fannie Mae guide to income calculations.

Changes in your work schedule or recent job changes may affect the accuracy of your income calculation. When it comes to obtaining their first mortgage, individuals with little work experience who are paid hourly might have difficulties.

How Overtime Pay Is Calculated For a Mortgage

When you get paid straight time plus overtime, your lender multiplies your previous two years of overtime pay and divides the total by 24 to calculate your qualifying monthly overtime compensation. If the extra pay drops over time, the lender may discount it. And your lender will most likely not accept it as income on your mortgage application if you don’t have a two-year history of overtime payments.

How Commission Income Is Calculated (if it’s 25 percent or more)

When you earn at least 25% of your overall income from commissions, your monthly average of the previous 24 months is taken into consideration. If your lender is unable to use your commission income for qualifying because it is less than 24 months old, you may not be able to refinance.

There are a few limitations. For example, if you work for the same employer and do the same job but make more money, changing from a salary to a fully or totally commissioned compensation will not damage you. However, you must first make the case and obtain your employer’s approval.

How Self-Employed Income Is Calculated For A Mortgage

When you are self-employed, mortgage lenders demand at least two years’ worth of verified income from your tax returns. They then utilize a complicated form to calculate your “qualifying” revenue.

Understand that your qualifying income is not the gross revenue (before income tax deductions) used by lenders when computing your qualification.
This guideline has been violated by lenders on occasion; specifically, for people who have recently launched a firm in a “related area.” It’s not unusual for people to work for the same firm, change to “consultant” status, and make the same or greater money today. These candidates may very well beat the two-year rule.

Find Out If You Qualify For A Home Loan

If you don’t have a traditional two-year employment history, it’s okay. But if you have a consistent income, that shouldn’t prevent you from obtaining a mortgage.

The secret to obtaining a loan is to locate a lender that is willing to work with you. Lenders are more flexible than they were in the past. As a result, you have the same options as any other home buyer when it comes to finding out what rates are available for mortgage loans.

FHA Employment Requirements For 2022 – 2 Year Work History

The FHA stipulates that borrowers must have a two-year employment history, but there are exceptions to the rule that allows purchasers to use their savings without having to fulfill the FHA’s two-year work requirement. If you want to apply for an FHA loan pre-approval, start by filling out the Loan Scenario Form. We can assist you without pulling your credit if you complete the form.

FHA Employment Requirements

The following are the employment standards for FHA loans as outlined in the FHA handbook 4000.1. Lenders must go through the verification procedure set forth by the FHA, and they may approve a loan with verified exceptions to the two-year employment rule.

  • The lender must verify 2 years’ work history – The typical technique for FHA-approved lenders is to conduct employment verification with the present employer. If the current position does not last at least two years, the lender is also required to contact the previous employer.
  • Employment does not have to be with the same employer – Although the criteria state that you must have a two-year work history, it does not have to be with the same employer. Over the past two years, you may have had numerous occupations with various employers.
  • Employment does not have to be in the same However, your absence will be taken into account if you have been working in the same field for more than two years. The lender will simply confirm that your present job is stable and likely to continue.
  • There can be gaps in employment with a letter of explanation – If you have a gap in your employment, you can submit a letter with a reasonable explanation for it. This is only necessary if the time away is for one month or longer.
  • Two-year work history can be waived with exceptions – The two-year employment requirement for an FHA loan may be waived in the following circumstances. The exceptions are listed below.

There’s plenty of leeway in the standards to accept gaps with an explanation, or proven exceptions.

Self-employed For Less Than 2 Years

In general, self-employed people must have a full two years of work experience with their current firm under FHA rules. An exception can be made if the borrower worked in the same line of business before launching their own firm.

FHA Without Two-year Work History Exceptions

The following exceptions are permitted if they can be verified by the lender.

  • Full-time student – To get an exemption from the two-year work history requirement, you can submit a copy of your college transcripts and a letter from your academic advisor.
  • Active military service – In addition, since military documentation may not always be available, active military service is an acceptable exception to the rule.
  • Medical condition – A letter from your physician describing a physical ailment that prevented you from working, whether working with or without disability income benefits.

Staying home to raise children – If you’re a stay-at-home parent raising children, you may be eligible for an exemption from the two-year work history rule. However, getting this approved is more difficult and lenders might only grant the exception if your absence is less than 2 years in duration.

Although it is most typical for FHA lenders to accept these exceptions, they may be challenged. If you believe you fit one or more of these qualifications, one of our FHA lenders can help you get a mortgage.

When Is A Gap In Employment Acceptable?

You can have a break in employment while taking out an FHA loan, but you must have been completely employed for the previous six months before obtaining your mortgage case number. The lender must also verify that you were continuously employed for two years prior to when your employment hiatus began.

When Is A Gap In Employment Not Acceptable?

There is enough leeway in the standards to allow for gaps based on a variety of reasons. However, taking a break from work or not being able to find employment for an extended amount of time will not be accepted as a cause for a gap in employment.

What If The Borrower Changed Jobs Often?

The lender will also want to verify with the current employer that the borrower’s employment situation in the future is stable, as well as his or her present income.


Peter has 7+ years of experience in residential lending. He is a licensed Realtor in the Chicagoland area.