Gaps in Employment & Switching Jobs

How to explain gaps in your income and job changes to your lender

Regardless of what your most recent employment details have been, Conventional mortgage programs require, at minimum, a review of any applicant’s most recent two-year employment history. 

This page may apply to you if any of the following apply to you :

  • You have not worked with the same employer or within the same industry for the past two years
  • You took some time off between jobs in the past 2 years
  • You are currently in the process of starting a new job
  • You received a raise or promotion recently
  • You took unpaid or adjusted-pay time off on "leave" from work temporarily in the past year

A minimum history of two years of employment income is recommended. However, income that has been received for less than two years may be considered acceptable, as long as you can show "positive factors" in your two-year history. This includes previous work history before the most recent two years, previous experience in the same line of work or industry, going to school for your career or job path, etc.

There are no explicit requirements tied to recent gaps in employment history and given the recent disruptions caused by COVID, more and more lenders are evaluating these gaps during the approval process. This section will outline the documentation you will need to provide if you have had gaps in your employment or changes in your job in the last two years.

What do we need?
  • Explanation for previous gaps in employment: All we need is a letter signed by you explaining why you have a gap in your employment.
  • Employment Contract: If you have started a new job during this calendar year or will be starting your new job within 90 days of closing, then you will need to provide your fully-executed employment contract for your current/future job. This should include your start date and how much you will be paid.
  • Confirmation of raise or promotion: if you received an increase in salary in the current year, you will be asked to provide a letter from your employer confirming when your salary increased and how much you are paid.
  • Letter about leave of absence: If you took time off from work in the current calendar year, such as disability leave or maternity/paternity leave, you will be asked to provide a letter from your employer confirming the start and end dates of your leave. If you are still on leave, the letter should confirm how much you will be paid once you are back full-time.
Common Issues
  • If your current & most recent employment income is variable, and there is not a full two-year history to calculate or use the full amount, it will change the eligibility work we have done up to this point and everything will need to be re-evaluated.
  • If you have switched between multiple jobs over the past two years in different industries and/or lines of work, have numerous gaps in employment, and/or have jobs in different lines of work, it could impact your eligibility.
  • Long unexplained gaps in employment without a history of employment beyond the most recent two years could impact your eligibility. 
  • If your new/future employment is temporary or set to start outside of 90 days from closing, it will not allow us to use the income to qualify you for your mortgage. 
  • If you are finding a new job, but the new employer is a temp agency, this will cause us to be unable to use this income to qualify you for your mortgage.  

→ Continue to the next article in this series, Verification of Employment

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