Can you qualify for a mortgage with a break in your employment?
The answer to your question depends on multiple factors including the length of the employment break and how long you have worked before and after the break. Most lenders and mortgage programs permit a break in your employment of up to six months as long as you have been back to work at least six months after the break and you have a two year work history prior to the break. There are several points to consider if you apply for a mortgage and have an extended gap in your employment history.
First, you are typically required to submit a letter of explanation that explains the reason for the break. While there is no list of acceptable explanations, potential reasons for a gap in your employment include taking time off to raise a child, care for a relative, attend school or serve in the military. Company-approved sabbaticals are not technically considered an employment break because you remain employed.
Lenders usually verify your employment when you apply for a mortgage but it may also be helpful to have your employer provide a letter that outlines your job terms including your position, salary and employment status.
Review Employment History Required for a Mortgage
Another point to highlight is that lenders review your employer and line of work before and after the break. If you go back to work for the same company or in a similar field following your break, this may improve your ability to get approved for the mortgage. If you change companies or industries, the lender may require more information on your new job and employer or you may be required to wait longer than six months before you apply for the loan.
How you are compensated is another factor that lenders focus on. For example, if your compensation plan changes and you now earn most of your income from commissions or bonuses you may be required to wait one-to-two years before you apply for the mortgage. If you shift from a full-time position to a part-time role, this may also be problematic because your income may be negatively affected, which impacts the mortgage amount you can afford.
Additionally, if you go from being a salaried employee to contractor, lenders may require that you wait longer after the employment gap before you can qualify for a mortgage, particularly if you are on a short term contract. Contract workers may also be considered self-employed applicants which means you may be required to provide additional income documentation and demonstrate a full two year self-employed work history.
If your new job after the employment gap has a trial or probationary period, you are typically required to wait until that period expires before you can qualify for a mortgage. Depending on the length of the trial period, you may be required to wait longer than six months before you apply for the loan.
It is important to highlight that employment requirements vary by lender and mortgage program. For example, the employment history guidelines for government-backed programs including the FHA, VA and USDA programs tend to be more flexible than for conventional mortgage programs. Applicants with a break in their employment or less than two year work history may be able to qualify for a mortgage with these programs as long as they can demonstrate that their current job and income is stable going forward.
If you have a work gap or unique employment history, your best course of action is to explain your situation to lenders upfront to understand what is possible. Just because one lender says you cannot qualify for a mortgage does not mean all lenders will come to the same decision.
The table below outlines mortgage terms for leading lenders in your area. We recommend that you contact multiple lenders as qualification guidelines vary. Shopping lenders is the best way to find the mortgage and loan program that are right for you, especially if you have a gap in your employment.
Sources
"B3-3.1-02, Standards for Employment Documentation." Selling Guide: Fannie Mae Single Family. Fannie Mae, October 24 2016. Web.
"B3-3.1-01, General Income Information." Selling Guide: Fannie Mae Single Family. Fannie Mae, August 7 2019. Web.