There are several ways to pay for a home, and many homebuyers look to mortgages to help them finance their dream home. There are a few requirements that must be satisfied to secure a mortgage. Among the documents required may be proof of two or more years of work history. For some first-time homebuyers or those with a unique employment situation, this may pose a challenge. If this sounds like you, don’t fret just yet — you may still be able to get a mortgage without two years of work history.
Understanding employment history for mortgage requirements
If you’re wondering “Can you get a mortgage without a job?” or an established work history, it’s helpful to understand why lenders have work history requirements in the first place. Lenders want to ensure that you’ll be able to repay them on time. This is why employment requirements for many mortgages usually include a work history of at least two years, as well as income verification. This information helps lenders gauge whether you’re a good candidate for a loan, as well as the terms of the loan — should you receive an offer. Here are some of the ways that information comes into play:
- Ability to repay and risk assessment: Income verification and work history help lenders assess whether you’ll be able to repay the loan. Consistent employment and steady income may be signs you’re financially responsible enough and have the stability to make your monthly payments.
- Loan terms and rates: Lenders also want to see work history and income information so they know what sort of terms and interest to offer on your mortgage. A low-risk borrower with consistent employment and income may qualify for better loan terms and interest rates than someone who doesn’t have as robust of a history.
- Legal and regulatory requirements: In some cases, authorities may require lenders to take work history into consideration as part of the underwriting process. This is essentially a process that helps lenders assess risk. Underwriting regulations help lenders show that they’re lending responsibly.
Common employment gap situations
Though employment and income verification provide lenders with a certain amount of security, you may not always be able to show proof of two years of work history or a consistent paycheck or other forms of income. However, that doesn’t necessarily mean you won’t be able to get approved for a mortgage. Lenders understand that there are plenty of perfectly good reasons you might have a gap in your employment. Let’s look at some of the more common reasons you might have some gaps between gigs:
- Education: Pursuing a higher education or certification is one of many ways people seek to improve themselves and their career trajectory. Depending on the workload or pacing of the degree or certificate, some people may opt to study without the added responsibility of a job.
- Career change: Getting laid off or changing careers are circ*mstances that could lead to a gap in employment. Depending on the state of the economy, it may take some time to find a position that aligns with your skills and career goals and some people are hesitant to settle.
- Illness or injury: Some illnesses or injuries may affect a person’s ability to work. Depending on the issue and its prescribed treatment, afflicted parties may be out of work for extended periods of time.
- Sabbatical: A sabbatical is a planned leave of absence from work that may be used for rest and recuperation, pursuit of one's interests or travel. While some employers may offer paid sabbaticals, others may be unpaid and therefore potentially affect the income verification requirements.
- Parenthood: Having a child involves a significant investment of time, and some parents may opt to take a longer leave than their employers provide. It’s not uncommon for one parent to focus on being a “full-time” parent until their child enters preschool, or even for most of their educational careers. This type of parenting will sometimes, understandably, lead to an employment gap.
- Caregiving: Taking care of a loved one in a time of illness or other hardship may involve a lengthy time commitment, and in some cases, quitting a job or taking leave.
- Freelancing: If you’re working for yourself and have a revolving door of clients it may sometimes be challenging to provide proof of consistent work and income, even if you’re not struggling financially.
While these situations may seem like potential roadblocks to getting a mortgage, there are some possible workarounds if you’re looking to buy a home.
How to get a mortgage without work history
Getting a mortgage with less than two years of work history may feel like a challenge, but there are compensating factors and moves that may reassure lenders that you’re a trustworthy borrower.
- Good credit: Since lenders are looking for signs that you’re financially responsible, a good, very good or excellent credit score may go a long way toward convincing them that you’re capable of making timely payments and not overly saddled with pre-existing debt.
- Substantial down payment: If you’re applying for a mortgage with less than a year of employment, offering a substantial down payment may shed light on your financial health and commitment to the mortgage. This may look good to lenders who are on the fence based on work history, as it lowers the amount you’ll need to borrow and, subsequently, helps lower the risk associated with the loan.
- Mortgage reserves: Mortgage reserves refer to any assets you can quickly access in the event you need help paying mortgage payments. Seeing you have two months of reserves may offer a lender security. Plus, if you’ve got significant cash reserves (at least six months of mortgage payments’ worth or more), lenders are likely going to want to see it. Knowing you have access to these funds may reassure lenders that you’re capable of keeping up your payments even if you find yourself afflicted by temporary financial issues.
- Co-signer: If your work history isn’t cutting it, you may consider finding a co-signer for your mortgage loan. Banks take co-signers on a case-by-case basis. There may be times where the co-signer may be asked to provide verification of their financial standing or occupancy — it may include providing proof of their work history and other financial credentials. This typically requires a high degree of trust on the co-signer's part, as they’ll now also be liable for missed payments of your mortgage, so keep that in mind when considering who to ask.
- Explore different loan options: Some lenders might be more flexible than others. It may be worth it to research your options to be sure you’ve found the best lender for your situation.
The knowledge shared above may be helpful to some buyers, but it’s important to remember that every lender and every borrower is different. If you’re feeling insecure about your work history or about mortgages in general, seeking help from a lending professional may give you a better picture of your options and maybe even help you plan out some steps to get you closer to buying the home of your dreams.
In summary
Buying a home is generally accepted as a major purchase and sometimes homebuyers need a little help paying for a dream home. Because lenders typically want proof that you’re a financially responsible person, they may have requirements regarding your work history and income. This might mean they want to see that you have two years at a steady job under your belt. Depending on your situation, however, it’s possible you may be unable to provide that proof. Thankfully, it’s possible to get a mortgage without two years of work history. Showing off your fiscal savvy in other ways (with a co-signer or good credit, for example) might be your ticket to getting approved for a mortgage whether you’ve been at home starting a family or traveling the world and finding yourself.
