Can you qualify for a mortgage with a break in your employment?

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

Edited by Michael Jensen, Mortgage and Finance Guru

Updated October 20, 2020

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.  The industry you work in and how you are compensated are also important factors.

If your employment break is relatively short -- less than two months -- you are usually required to return to work for only one month before you can get approved for a mortgage.  There are several points to consider, however, if have an extended gap in your employment history.

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 one-to-two year work history prior to the break.

In this scenario, you are typically required to submit a letter of explanation that explains the reason for the break. While there is no specific 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.

Additionally, lenders 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 new 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 before you apply for the loan.

How you are compensated is another factor that lenders focus on. For example, if your compensation 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 loan you can afford.

Also, if you go from being a salaried employee to self-employed or a contract worker, 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. Self-employed applicants and contract workers may be required to provide additional income documentation and demonstrate a full two year self-employed work history.

Additionally, 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 may be able to qualify for a mortgage sooner with these programs as long as they demonstrate that their current job and income are stable going forward.

Applicants with an employment gap of longer than six months are evaluated by lenders on a case-by-case basis.  In this situation, factors like your credit score, debt-to-income ratio, financial reserves and prior employment history are taken into account when you apply for the mortgage.  The stronger your loan application is these areas, the better positioned your are to get approved for the mortgage despite the extended break in your employment.

If you have a lengthy 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.