When you apply for a mortgage, underwriters will comb through your finances to determine if you’re a good candidate for a loan.
This includes verifying a lot of personal information, including your income, assets, credit history, and employment.
Without these important details, it would be impossible for the lender to assess your default risk, or chances of missing a mortgage payment, or worse, being foreclosed upon.
This is known as “capacity,” which is one of the three C’s of underwriting and basically your ability to repay the loan.
When You Apply for a Mortgage You’ll Provide Employment Information
- First you simply input your employment information on the loan application
- Including job position and time on the job
- Along with your salary and any overtime/bonuses
- This is later verified with financial documents and verification of employment
During the initial stages of the home loan process, you’ll simply input or tell the bank or broker what you do for a living, how much you make, and how long you’ve done it.
As a rule of thumb, mortgage lenders generally want a minimum of two years in the same position or line of work.
This shows them a history of earnings, that you have consistently been employed, and have the ability to maintain employment, all of which are important to ensure timely mortgage payments are made in the future.
Once your home loan application arrives at the underwriter’s desk, they’ll dig into the details a bit more and connect all the dots.
This means looking at what you do for a living, how much you’re paid, how much you’ve saved, and ensuring it all makes sense.
Back in the early 2000s when stated income loans were all the rage, underwriters had to be really diligent to make sure what the borrower said they earned made sense.
For example, someone working as a cashier probably couldn’t state that they were making $100,000 and get away with it.
But for those who had a less clear position, sometimes verifying employment could clear things up.
What Happens When Lenders Verify Employment?
- Underwriters need to know that you’re actually employed
- And working in the position and industry stated on the loan application
- They verify this information by calling your employer or scanning a database
- Typically early in the home loan process and at closing
Once you have signed your initial disclosures, the loan processor will likely verify employment upfront.
There is a company called The Work Number, owned by credit bureau Experian, which offers employment verification for mortgage lenders.
They work with thousands of employers nationwide, including more than 75% of the Fortune 500 companies out there and most federal government employers.
The Work Number issues Employment Data Reports (EDRs) that look similar to credit reports, but instead of containing your credit history, they include employment history.
Speaking of similarities between employment reports and credit reports, you’re also able to dispute information you feel is inaccurate or incomplete.
It’s actually built into a variety of mortgage loan origination systems (LOS) like Blend, Calyx, Encompass, Floify, Roostify, and others. This makes it easy for loan originators to import your employment information.
An EDR will include things like the start date with your employer, your total time at the job, your base pay, overtime pay, bonuses, and total pay.
Additionally, it might show your last pay raise and any projected raises slated for the near future, along with a breakdown of earnings for your latest pay period.
The employer’s address and contact information should also be listed should the loan processor or underwriter need to call.
If the company isn’t in The Work Number database, they may have to reach out directly to the HR department and ask for a verification of employment (VOE) to be completed.
Your employer may be asked to fill out a VOE form that provides the same details like job history, salary, and so forth.
Typically, a written VOE is only necessary if using overtime and bonuses, otherwise you can often get away with a verbal VOE.
If the borrower is self-employed, they’ll typically ask you to furnish a business license or a CPA letter to piece everything together with your tax returns.
Make Sure You’re Employed During the Entire Loan Process!
- A second VOE will be performed around the time of loan closing
- To ensure that you’re still employed
- And that you haven’t quit, been fired, or changed jobs
- So don’t mess around until your mortgage actually funds
Around the time of closing, a second VOE will be performed, known as a “Funding VOE.” Either a verbal one via the HR department or a refreshed report from The Work Number or a similar company called Inverify.
This is important because sometimes, for whatever crazy reason, an individual will quit their job, change jobs, or get fired during the loan application process. It sounds highly unlikely, but these things happen all the time.
Essentially, the lender needs to know you’re still gainfully employed at the end of the process as well.
Anyway, armed with this information, underwriters will be able to decision your home loan with confidence, knowing you’re able to make payments and satisfy repayment of the loan.
By taking the time to verify employment, lenders can cut down on fraud and also ensure that only creditworthy borrowers are approved.
It’s important for borrowers to be honest when answering employment-related questions because this information will be verified.
Interestingly, there have been cases of fake companies being set up for the express purpose of fooling mortgage lenders, even when they verify employment.
By creating fake business names with real addresses, phone numbers, and personnel, fraudsters can sometimes circumvent these rules. They even create fake pay stubs to go along with it.
But mortgage financiers like Fannie Mae say they often appear fishy, with inflated salaries, limited work history, and pay stubs that lack the typical details regarding 401ks, health insurance premiums, and so on.
In summary, employment is a key piece of the underwriting pie and is essential to qualify for a mortgage. Be sure your work history can be verified to ensure success when applying for a home loan.