Employment history is a very important aspect of a mortgage application. Mortgage loans are usually for substantial sums of money and lenders want to reduce the risk that borrowers will default. One sign that a borrower will be consistent in making their mortgage payments is if they have a stable two-year history of employment. But what if you have gaps in your work history? Can you still qualify for a mortgage?
Most lenders will only require a two-year work history, so if you had gaps prior to that period, you may not even need to inform your lender about it. If you have had gaps in the past two years, lenders are most concerned by unemployment periods of six months or more. If you were out of a work for just a month or two, there may not be an issue with your mortgage approval.
Acceptable Gap Reasons
Of course, most gaps in employment are for specific, valid reasons and lenders will take these into account. Maternity leave is an obvious reason for many people to take up to six months off of work; people also frequently take time off to finish or go back to school. Company layoffs and temporary disability are other common reasons for employment gaps. Every mortgage application is reviewed individually, and lenders are understanding of common and logical gaps.
There are some employment factors that are big red flags to lenders though. These include frequent job changes (more than three times in a 12-month period), an employment history of only two years or less and recent large increases or decreases in income. If you have any of these issues, you may have a harder time being approved.
Explain Your Gaps
You can improve the odds of your mortgage application being approved by adding explanations and documentation about your employment gaps of six months or more. For instance, if you went on maternity leave you can provide documents from work detailing your time off. If you went back to school, you can provide your transcripts from each semester. If you had to take time to care for a sick or elderly family member, you can write a letter about the circumstances and explain how you will manage that situation in the future while working.
If you can show proof that you have made consistent rent or mortgage payments during your employment gaps, that can also be helpful. Or if you lost a job without cause, providing documentation of that will make your application more attractive. If you have significant gaps in your employment in the past two years, you could give them several years’ worth of employment history to show a more complete picture.
Overall, your lender is looking for stability in your work history. They want to see that you can be counted on to bring in a consistent income to cover your mortgage payments. If you can prove this, then even some gaps in your employment can be overcome.