What is the employment history requirement for an FHA loan?

By Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience

Edited by Michael Jensen, Mortgage and Finance Guru

Updated October 20, 2020

From a technical standpoint, the FHA program does not apply a minimum employment history requirement. From a practical standpoint, however, applicants are typically required to have a two year continuous job history to qualify for an FHA mortgage.

According to FHA program guidelines, lenders are required to verify your employment for the most recent two year period. Lenders review your job history so they can confirm that your income is “stable” and permanent, which means that your income is expected to continue for at least three years.

The logic follows that applicants with steady, ongoing incomes are more likely to pay their mortgage on time and less likely to default on their loan. In short, lenders evaluate your employment history to both understand where you have worked and to assess the quality and stability of your income.

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There are a couple of important points to highlight about the two year employment history guideline. First, military service and full-time education such as college count as employment when you apply for an FHA loan.

For example, if you have been working at your current job for a year but prior to that attended college full-time for four years, you should meet the eligibility requirement. Additionally, if you were active duty military for several years before taking a job in the private sector, you should be able to qualify for an FHA mortgage.

Additionally, the two year work history does not need to be with the same employer. So if you change companies multiple times but maintained your income, you are eligible for an FHA loan. You may even be better positioned to qualify if your new job pays more.

If you switched jobs it is helpful if you continue to work in the same industry and if your type of employment and how you are paid remains the same. If you go from being a W-2 salaried employee to being self-employed or paid via commissions or a bonus, you may have to wait before you are eligible for an FHA mortgage.

Another point to highlight is that you are required to explain any breaks in your employment of over a month. So if you took time off from working for any reason, the lender typically requires you to provide a letter of explanation that addresses the work gap. Examples of potential employment gaps include if you were in between jobs or if you do seasonal work for part of the year.

Employment breaks of over six months are also permitted if you worked for at least two years before the break and you have been back at work for at least six months. Examples of this scenario are applicants that took a sabbatical or who returned to the workforce after taking time off to care for a relative.

Based on the guidelines outlined above, if you have worked continuously for at least two years, you should meet the employment history requirement for an FHA mortgage. But what happens if you have been employed for less than two years or more specifically between one and two years?

Unfortunately, this is a gray area when you apply for an FHA loan. If your job and income are steady you still may be able to qualify, although there is no guarantee.

If you find yourself in this situation, ask your employer to provide a letter that outlines the terms of your job and states that you are expected to continue to be employed. This letter helps your lender verify the stability of your employment and income.

It can also be helpful if your mortgage application is stronger in other areas including the following:

you have a high credit score

you have a low debt-to-income ratio

you make a higher than required down payment

you having significant financial reserves

Even if you meet the above criteria, getting approved for an FHA loan with a work history of less than two years may require extra effort and not all lenders are willing to work with applicants that fall into this category.

This is why it is important to review your employment history before you select a lender. You want to make sure that you work with a lender who is willing to put in the additional time and effort to try to get your application approved.

The table below shows mortgage rates and fees for leading FHA lenders. We recommend that you contact multiple lenders to confirm their qualification requirements and to find the best FHA loan terms.

Sources

"II.A.4.c. Income Requirements (TOTAL)."  FHA Single Family Housing Policy Handbook 4000.1.  Federal Housing Administration, January 2 2020.  Web.