Ask an Expert: Employment required for a mortgage

Q: How long do you need to be employed in order to qualify for a mortgage?

A: Employment status is an important part of the mortgage approval process. Your career history can be a good indication of how easy it will be for you to meet your payments. That’s why, as a rule of thumb, lenders like to see two years of steady employment. However, they also take into consideration your credit score, the size of your down payment, and other factors.

A steady income -- be it an annual salary or an hourly wage for the same number of hours a week -- improves your chances of qualifying for a loan. Lenders will be reassured by the fact that you have the income to meet your monthly obligations. If you started a new job less than two years ago but have a solid career record in the same field, lenders will often look favourably on your employment status. Of course, a good credit score, an acceptable down payment and a favorable debt-to-income ratio (the ratio between how much you owe and how much you earn each month), will also help you secure financing.

If your income fluctuates significantly from month to month and year to year, however, lenders may be concerned about your ability to make your payments reliably. This can sometimes be the case for commissioned salespeople or the self-employed. These people may need to demonstrate that they have been doing the same work for at least two years, and should be prepared to show documentation proving this. For example, the lender may ask to see your tax returns as proof of your income, and you may also be asked to show your business’s financial statements and proof of other assets.

That said, if you work on commission or are self-employed you can still be approved for a mortgage. Lenders recognize that today’s economy includes more people with unconventional jobs than ever before. As a result, there are mortgage products designed specifically for people who earn irregular income. These include stated-income mortgages, which allow borrowers to declare a reasonable annual income without providing documentation. However, these mortgages may carry higher mortgage rates than conventional loans.

Finally, remember that your employment status is only one factor that lenders consider. Whatever your job situation, excellent credit and a sizeable down payment may improve your chances of being approved.

Chip Abbott
Senior Director of Home Loan Products