If you just landed a new job and you’ve decided to buy a house, getting an FHA (Federal Housing Administration) loan is one of your options to fund the purchase. Many people ask, “Can I get an FHA loan if I just started a new job?”
The answer is yes. You can get a loan from the FHA even if you don’t have two years of employment history. You may still qualify for FHA home loans if you’re a full-time student, you have a medical condition, or you’re in active military service.
Not only that, most mortgage lenders don’t just focus on your work history. They also have to take into account other factors such as your ability to put a down payment, credit score, and debt ratios. Some mortgage lenders require you to provide your W-2s for the past 2 years along with your recent 30-day pay stubs.
FHA Employment Requirements For Loan Eligibility
FHA doesn't set a minimum length of employment for people who wish to apply for a mortgage, however, FHA-approved lenders need to prove that you have a stable and reliable income when deciding whether to approve your loan application.
With this in mind, the lender, will have to verify the borrower's employment for the last two years, and the borrower must explain any gaps in employment lasting more than a month. The borrower will also need to and indicate the reasons for any employment gaps.
Borrowers may have to submit evidence of the reasons indicated as well such as eg. school transcripts or a doctors letter if you've not be working due to school or a medical ailment.
Also, if you’re a buyer with a new job, you'll have to wait until you have pay stubs that cover 30 days before applying for a loan.
Lenders may also verify your employment by contacting your employer.
Can You Get A FHA Loan Without 2 Years of Employment?
According to the FHA employment guidelines 2021, applicants will need to verify their two-year work history when applying for a loan. This does not mean that you will not get a your FHA loan approved if you haven't been employed for the full duration of the two years.
Mortgage lenders want to know if you can make payments on time and that’s why they’ve put together a set of FHA loan rules. They want to ensure you have a reliable and stable source of qualifying income.
You may still qualify even if you have less than two years of employment history provided that you can explain reasons why you have not been employed for two full years.
For instance, you may show that you’ve gone through a relevant training program that has significantly improved your skills. You may also be eligible if your recent employer hired you because of the skills you’ve gained from your past employer.
Can You Qualify For FHA Loans If You Have Gaps in Employment in the Past 2 Years?
Some people think that having gaps in employment will lower their chances of getting approved for an FHA-backed loan. But that doesn’t have to be the case. What’s important is that you can provide proof that you’re financially stable and can afford the loan. So even with employment gaps, you still have chances of securing a home loan approval.
Other Exceptions To The 2-Year Work History Requirement
You can still get a mortgage without 2 years of work history if you meet certain conditions or are able to show reasons why you haven't been employed.
For example,
- Full-Time Student – You must present a copy of your college transcripts.
- Medical Condition – You must provide a letter from your physician explaining your medical condition and how it prevents you from working.
- Active Military Service – You must present a verified document stating that you’re in active military service.
Let's also take a look at FHA loan eligibility for people who are unemployed, under maternity/paternity leave, disability leave, in the process of changing jobs, and individuals who are self-employed.
Unemployed For More Than 6 Months
If you have gaps in employment for six months or more, you may still be eligible for FHA loans if you can prove that:
- You've been employed in your current job for at least six months since you applied for the FHA loan.
- You have at least a two-year work history before the employment gap.
Maternity, Paternity or Disability Leave
If you had to leave work temporarily because you had to go on a disability, maternity, or paternity leave, you may still be eligible for a FHA loan. The loan officer needs to verify that you intend to return to work, still have the right to work for the same employer, and qualify for the mortgage loan.
Change Of Jobs
The FHA won’t immediately raise a red flag once they see in your file that you have frequent job changes within two years before you apply for a loan. However, your chances of getting an FHA loan approval may decrease if you've changed jobs more than three times.
Can you still qualify for an FHA-backed loan? Yes. If you have changed jobs thrice within a span of 12 months, you have to prove the stability of your current source of income.
You'd have to provide transcripts of education demonstrating qualification or training that can prove that you have the skills or you’re qualified for a new position. You may also show employment documentation that shows continual increases in your income.
Self-Employed
If you’re self-employed, you may be qualified for an FHA loan if you can prove that you own at least 25% of your business. Self-employed borrowers need to provide their personal and business tax returns for two years, balance sheets, and profit and loss statements. Your self-employment income has to be sufficient based on your lenders standards.
How To get A Mortgage Without 2 Years of Work History
Lenders don’t just look at your 2 year employment history when you submit a mortgage application. They look at the bigger picture when evaluating applicants who are getting a mortgage with a new job. This means they will consider other things when determining if you can afford the loan or not.
The most common compensating factors that FHA lenders look for are high credit scores, low debt ratios, assets on hand, stable income, and the ability to put a down payment.
1. Cash Reserves
Lenders may also look into the borrower’s cash reserves or total assets. They may qualify for an FHA-backed loan if they meet certain requirements such as having cash reserves that are at least three times the monthly mortgage payment.
If you have salaried, full-time work, lenders may consider other “positive” factors, such as your educational background and an explanation letter to compensate for your shorter employment history.
2. Education
FHA Lenders may also check your educational background. They may consider your application if you’ve completed a four-year degree in the field that you’re currently working on.
3. Explanation Letter For Job Change
If you switched careers or changed jobs recently, sending a letter of explanation to the lender may improve your chances of qualifying for an FHA loan. Describe how your new job is related to your previous employment. Enumerate the skills you’ve learned and from your past job that you’re using in your current job.
Can You Get A Mortgage Without A job?
There are some ways to improve your chances of qualifying for FHA loans even if you don’t have a job.
1. Offer Letter For a New Job
You may still qualify for a mortgage even if you don’t have a job at present but will start work soon. If you’re about to start a new job, you can present a copy of your offer letter and a verification that you’ve been hired by your future employer.
2. Spouse or Partner’s Employment
If you don’t have a job, you may still qualify for a home loan if your partner or spouse has a stable income.
3. Assets
If you’re currently out of work, you may get a home loan if you have significant assets. Lenders may put you under what they refer to as an “asset depletion mortgage,” wherein you’re expected to liquidate or sell your assets so you can meet your mortgage payments.
4. Investment Income
If you receive dividend or interest payments from your investments, then lenders may consider this when deciding whether to approve your loan application or not. You need to be earning significantly from this source if you want to get approved for a mortgage.
Keep in mind that these rules differ from one lender to another. Whether or not you will get approved for an FHA loan will depend on your unique situation. Talk to different lenders so you’ll know what your options are.
Other FHA Loan Requirements to Know About
Aside from having a verifiable employment history, you also need to meet other requirements to qualify for FHA loans.
1. Credit Score Requirements
You should have a FICO score of at least 580 to qualify for a 3.5% down payment or between 500 and 579 for a 10% DP. Always remember that a higher credit rating will get you better terms like lower interest rates.
2. Property Requirements
You must use the loan to purchase a primary residence. You’re expected to occupy the house within 60 days after closing. The property can be a single-family home, multi-family home, or a manufactured home that’s fixed on a permanent foundation.
It can’t be a house flip or an investment property unless it’s a multi-unit dwelling where you own and live in one of the units. The property must be appraised by an FHA-approved appraiser.
3. Debt to Income Ratio
Your front-end debt ratio, which refers to the monthly payments you make every month, should not exceed 31% of your gross monthly income. Your debt-end debt ratio, which refers to mortgage payments plus all other monthly debt payments, must not exceed 43% (in some cases up to 50% for other lenders) of your gross monthly income.
4. Mortgage Insurance Payments
You need to make an upfront mortgage insurance premium of 1.78% of the amount of your loan at closing. After this, you’re required to pay monthly mortgage insurance payments.
If your down payment is at least 10%, you’ll make monthly insurance payments for 11 years. If it’s less than 10%, you can only avoid paying this premium if you refinance it into one of the conventional loans.
5. Other Requirements to FHA Less Than 2 Years Employment Rule
If you filed for bankruptcy, you need to wait for one to two years before you can apply for an FHA loan. If you lost a home due to foreclosure in the past, you can still qualify for an FHA but you need to wait for three years before you can apply.
Conclusion
FHA loans are great options if you’re a first-time home buyer looking for a mortgage with less stringent requirements. If you land a new job or have gaps in employment, you can still apply for this loan type as long as you can prove that you have at least a two-year job history. But there are exceptions to this rule including being a full-time student, serving in the military, and having a medical condition.
Even with employment gaps, don’t feel discouraged. Just like any other type of loan, you need to do your research first. You have to understand the ins and outs of FHA loans so that you can make an informed decision.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
