When you submit a mortgage loan application, your lender must verify that you have sufficient income to take on the new debt. Lenders therefore contact your employer to verify your employment; this normally occurs after you receive your preliminary approval for the loan. However, the mortgage loan process can take weeks or even months, so lenders typically re-verify your employment prior to the loan closing.
You must include income information on your mortgage loan application. Your lender uses the information provided, such as your stated annual income, to make a preliminary decision on your application. Your lender compares your stated income with the debt levels shown on your credit report and calculates your debt-to-income ratio. If you have enough income and satisfactory credit, then you get a preliminary approval. Credit bureaus usually have records pertaining to your employment and can provide your lender with an estimate of your annual income. However, credit bureaus don't always have up-to-date information, so your lender must contact your employer to find out if you're still employed.
The majority of loans written in the United States are sold to mortgage entities Fannie Mae and Freddie Mac; these two firms require lenders to obtain a written verification of employment notice from your employer. For a first-lien mortgage, the lender must send a verification form directly to your employer; an authorised representative of your employer must complete it and send it back to the lender. For a second-lien loan, such as a home equity loan, the lender can give you the form and ask you to have your employer complete it and return it to the lender.
Typically, the mortgage underwriting process takes between 45 and 60 days to complete. Because your credit report changes once a month, your lender checks your credit again prior to closing to ensure that your financial circumstances haven't changed. Additionally, your lender re-verifies your employment at the end of the underwriting process to ensure that you're still employed. This second verification could occur on the day of the closing --- a job loss or change of jobs could derail the entire mortgage process.
If your lender discovers that you've lost your job or changed jobs during the underwriting process, you may still qualify for a loan, but at best you must face a delay. You must provide your lender with evidence of a new income source, and your lender must contact your new employer and verify your income at least once before closing on the loan. If you're self-employed, you must have two years of verifiable income before you can qualify for a loan. Additionally, if you don't find a new employer, you could get your loan back on track if you find a co-signer willing to take on the shared responsibility of the loan.
- eFannie Mae: Verification of Employment
- Bankrate.com; Three Ways to Mess Up a Home Mortgage Closing; Holden Lewis; June 2010
- Bankrate.com; Refinance an Uphill Fight After Job Loss; Don Taylor; January 2010
- Bankrate.com; Don't Apply for New Credit Before Your Mortgage Loan Closes; Holden Lewis; May 2010