Bypass the two-year rule
Two years of stable work is one of the basic requirements for obtaining a home loan.
But what if you are just starting a new job or have recently changed careers? This does not necessarily mean that you are barred from buying homes.
In fact, according to the mortgage consultant Ivan Simmental, seniority is just one piece of the puzzle. If you can prove that you are a strong borrower – and not a risky bet for the lender – there are ways to get around two years of work. Here’s how.
Listen to Ivan on the Mortgage Reports Podcast!
Need a job history to buy a home?
Technically, yes, it takes two years of work experience to buy a home. This can make it difficult to approve mortgages for first-time home buyers or borrowers who have recently changed jobs.
Good news? “There are several ways to get around the two-year rule,” Siemental said in a recent episode of the series. Mortgage Reports podcast…
“When a lender looks at your loan profile, he wants to make sure that you are able to repay the loan,” he explained. “They look at three main things: your credit, your income, which includes your job and your assets, and what you have to make a down payment.”
In other words, lenders look at the complete picture of your mortgage application. In this way, shorter seniority can be offset by strengths in other areas, such as credit rating or assets.
The exact flexibility will depend on your specific situation, including your career development, your loan program, and the lender you choose. Let’s go into details now.
Who can buy a house without two years of work experience?
“If you have excellent creditworthiness and can put in a lot of money or have money in reserve, but you don’t have two years of work experience, lenders can make an exception,” Symenthal said.
The key to these exceptions is what lenders call “offset factors” – or elements that offset (and then some) the negative mark on your loan application.
Compensating factors include things like:
- Very large down payment
- Excellent credit rating
- Low debt-to-income ratio (DTI)
- Lots of cash in savings or assets
- A new mortgage payment that is the same or lower than what you are currently paying for your home.
According to Simmental, if you have one or more of these factors, lenders will “view you as a responsible, risk-free borrower” and are more likely to approve your mortgage.
What is most important is the opportunity to prove that you can afford the monthly payments on the new loan.
Your bank statements, pay stubs, tax returns, or a compelling new employer offer letter can help with this, even if you don’t have two years of work experience.
Mortgage approval is permanence
According to Simmental, “two years” of work does not necessarily mean two years in one job, or even two years in general.
Instead, lenders want to see consistency – that you have had some income in the past two years and will continue to receive it after the loan is closed.
“If in the last two years you have had several jobs, but you have worked for two years in the same job or in some related field, we still consider this as constant income for two years,” said Siemental. “It doesn’t have to be two years in the same job. It just has to be two years of continuous work in the same or similar field. “
Not necessarily two years in the same job. You just need two years of continuous work in one or a similar field.
In some cases, study can also be considered work. This is especially true for high-income professionals such as doctors and attorneys. Some new hires may only be approved on the basis of a job offer.
Even unemployment income, if earned on a regular basis, can sometimes count towards two years of work experience.
“Let’s say in the last two years you worked for six months, were unemployed for two months, worked again for six months, and did it on a regular basis for two years,” said Simmental. “Then we can use this unemployment money as income, because you are constantly receiving unemployment for two years.”
Symenthal said this approach is common among blue-collar, seasonal and contract workers who may not have a steady job or a stable monthly income.
Flexibility depends on the lender and the loan program
The exact flexibility you will have will depend on your mortgage program and the lender you choose.
The employment rules by loan type are as follows:
- With FHA loans and regular loans, you will need two years of work experience and at least six months in your current job
- VA credits require borrowers to provide at least two years of work, training, or military service
- USDA loans request two years of work experience (although your current position does not require a minimum time)
The guidelines also differ from lender to lender, as each company has its own requirements and risk threshold. This is why it is so important to find a mortgage lender, especially if you are worried that you are not eligible to participate in the program.
“There are many lenders who can and will work with you,” Symenthal said. “It’s your job to do your homework, do your research, and find these lenders.”
The essence? Don’t give up if you are not immediately approved
Finally, Symenthal said, being turned down doesn’t mean you can’t get a loan elsewhere. So keep trying.
“Just because one lender says no to you doesn’t mean another lender will also say no to you,” he said in a podcast. “It all depends on the bank’s rules and their flexibility.”
Therefore, if you believe you are eligible for a mortgage loan – whether you have worked in the same industry for two years or have a comparable education and work experience – apply with several different mortgage lenders.
Not only will this help you get approval, but it will also help you find the lowest possible interest rate and save money on your new home.