You apply for a mortgage only to be turned down because your work history is insufficient. The lender explains that you need two years of consistent work history, and you don’t quite meet this requirement. So are you completely out of luck? Not necessarily. Read on to learn more about this rule, why it’s mandatory with most traditional lenders and how to secure a mortgage without two consecutive years of work history.
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The Requirement of 2 Years of Work History for a Mortgage
In most instances, you’ll need two years of work history in the same field to be eligible for a home loan. This requirement stems from guidelines set forth by Fannie Mae and Freddie Mac regarding conventional loan products. You don’t necessarily have to work with one employer or in the same role within this time period – what’s most important to lenders is that your source of earnings is consistent and your work experience is similar if you’ve held more than one job.
Why Do Mortgage Lenders Require Work History?
Lenders want proof that you have the ability to make timely loan payments. Consequently, the lender will evaluate your credit score to determine how you’ve managed debt obligations in the past, along with your income, to ensure it’s sufficient enough to cover your mortgage payments and other monthly expenses.
Exceptions to the 2 Years of Work History Rule
Select borrowers in industries with high-earning potential, like attorneys and doctors or technical school graduates, are sometimes able to count the time spent in school towards the two-year work history requirement. The same applies to seasonal, gig and contract workers that consistently receive unemployment income during off-peak periods.
In some instances, employment gaps may also be acceptable in the eyes of the lender if you can provide a viable explanation. These include hiatuses from work due to childbirth, the death of a relative, medical issues or a layoff. Some lenders will also accept hiatuses due to time away from work that was spent to further your education.
Keep in mind that recent gaps that span longer than six months could make you ineligible for a traditional home loan unless you have six consistent months of current employment.
Can You Get a Mortgage without 2 Years of Work History?
Yes, you can get a mortgage without a two-year work history, solid credit rating, sufficient down payment and adequate cash reserves as mandated by the lender.
Ultimately, it depends on the lender and loan program you select. Here are the employment guidelines for traditional mortgages:
- Conventional loans: These are the most common mortgage products amongst borrowers and require a minimum of two years of work history to qualify. You should also be employed at your current job for at least six months before applying to meet the eligibility guidelines.
- FHA loans: Backed by the U.S. Federal Housing Administration, FHA loans are flexible mortgage products that also require two years of employment experience and six months in your current role.
- VA loans: These home loans exist to serve members of the armed forces, both active and retired, and qualifying relatives. VA loans are backed by the Department of Veterans Affairs and require two years of military service, schooling or employment experience to be considered for funding.
- USDA: If you’re looking to live in an area that’s categorized as rural by the U.S. Department of Agriculture (USDA), this loan product could work for you. It requires two years of work history but doesn’t specify a minimum number of months or years you’ll need in your current role.
Be mindful that a non-qualifying mortgage (Non-QM) from a flexible lender, like Angel Oak Mortgage Solutions, may allow you to circumvent the work history requirement to get a home loan.
Purchase or refinance without W2 by using 1099s, bank statements, assets, or debt coverage ratio. Click below to get started.
What Do Lenders Consider Instead of Work History?
Borrowers who don’t have two years of work history may be eligible for a home loan based on what’s referred to as “compensating factors,” including:
Your Ability to Put a Down Payment
Expect to make a payment of at least 10 to 15 percent down for a non-traditional home loan that doesn’t require two years of work history.
Your Capacity to Pay Off the Mortgage
As mentioned above, lenders want reassurance that you can afford to make timely loan payments and ultimately pay off the loan. So, they will evaluate your current earnings to determine if they’re sufficient.
Whether You Have Cash Reserves
You may need cash reserves adequate enough to cover at least six months of mortgage payments that you can use in the unfortunate event you experience financial hardship.
Whether You Have Investments
Investments that are liquid or easily convertible into cash are also seen as favorable in the lender’s eyes as they are another source of funds you can tap into if needed to make your mortgage payments.
Property Requirements
The property you’re considering should also meet the lender’s guidelines.
Your Credit Score
You’ll likely need good or excellent credit to qualify for a home loan without meeting the two-year work history requirement.
Your Debt Ratio
Your debt-to-income ratio, or the amount of monthly debt obligations compared to your earnings, should also be acceptable to the lender. Ideally, you want this figure to be at 43 percent or lower. But some lenders accept DTIs as high as 50 percent, depending on other factors, like your income or creditworthiness.
Your Other Assets
Other assets you have in your possession, including investment accounts, may help your approval odds, so be sure to provide the applicable documentation if requested.
Other Proof of Income
Prepare to provide any income documentation if required by the lender to substantiate your past and present income. This includes W-2s, bank statements, tax returns, 1099s or any other documents that reflect earnings and could be helpful to the lender when computing your income.
Where to Get a Mortgage Even without 2 Years of Work History
When you’re ready to move forward with securing a mortgage, consider Angel Oak Mortgage Solutions. It’s a full-service mortgage lender that provides innovative solutions to borrowers from varying financial backgrounds. You can explore both traditional and Non-QM Home Loans – the latter could be ideal if you’ve had trouble getting approved with other lenders.
Current offerings include Bank Statement Home Loans for self-employed individuals, Jumbo Home Loans if you’re looking to purchase a luxury or higher-valued home, Investor Cash Flow Loans for real estate investors or Portfolio Select Home Loans if you’re recently experienced an adverse credit event, like a foreclosure or bankruptcy.
There are also traditional loan products, including Conventional Home Loans, that could be a good fit. Or you can consider a government-backed mortgage product, like an FHA Home Loan, USDA Home Loan or VA Home Loan, if you’re seeking a more flexible option to make your homeownership dreams a reality.
Inquire today about Angel Oak Mortgage Solutions’ offerings by visiting the website and completing a simple online form.
Purchase or refinance without W2 by using 1099s, bank statements, assets, or debt coverage ratio. Click below to get started.
