When a buyer is applying for a loan, employment is a major factor. Employment histories provide a lender with information on gross income and paint a picture about how stable the applicant's employment history has been. These factors help the lender to assess the risk in granting a buyer a loan based on the probability of default or willingness to make regular payments.
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The lender will check the borrower's stated income and any pay stubs or bank statements required (the information that was a part of the mortgage application) versus the employer's verification of the income. The lender will contact the borrower's human resources department and request verification of buyer's gross (before deductions) income and any applicable bonuses. Some lenders will also request a buyer's net (after deductions) income. The verified employment income for a buyer is used as a baseline to determine how much of a mortgage and monthly payment that he can qualify for.
Full time or part time
The lender will also request verification for the amount of hours that a buyer is working. Part-time employees can sometimes be considered a higher risk than full-time employees based on fluctuating income. In addition to the verification of the amount of hours that the buyer is working, the lender will also verify whether the buyer's term of employment is on a temporary or permanent basis.
Length of employment
The amount of time a buyer has been employed with the same company helps the lender evaluate his stability. Typically the minimum requirement for a buyer to qualify for a mortgage is two years of full-time, permanent employment with the same company.
This requirement can sometimes be modified if the buyer has changed employers but remained in the same field of employment for the past two years. The lender will require employment verification from all employers for two years prior.
The lender will also require the status of the buyer's employment. In other words, the employer wants to make certain that the buyer is in good standing with her company. She cannot be on probation or suspension, as any serious disciplinary action can be considered a high risk for a losing a job in the near future, thus impacting the ability for her to make a mortgage payment.
The requirements for length of employment for self-employed individuals or independent contractors is also a consideration. As with any other buyer, a self-employed or independent contractor should have been steadily employed in the same field for the past two years. In addition, the lender will average out monthly income based on the last two years of declared income on the buyer's income tax returns. Things have become more difficult for the self-employed since the housing bubble burst. Before 2008 it was as simple as a self-employed person declaring their incomes on a simple self-certification form, a form that was rarely checked. Based on that information, lenders were happy to authorise a mortgage. However, since 2008 self-certification mortgages have disappeared, self-employed people face much stiffer checks. A self-employed person will now need to Obtain a completed SA302 from Her Majesty's Revenue and Customs (HMRC) which is available in the resource section below.
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