Will Your Lender Verify Employment On The Day Of Your Closing
January 23, 2019 By JMcHood
Its no secret that your lender will verify your employment to qualify you for a loan, but they do this early on in the process. What happens on the day of the closing, though? Will the lender verify your employment again?
Typically, lenders will verify your employment yet again on the day of the closing. Its kind of a checks and balances system. The lender needs to make sure that nothing has changed since you applied for the loan. In a typical purchase transaction, it can take between 30 60 days to get to the closing thats a lot of time for circumstances to change.
In addition to your employment, your lender may also pull your credit one last time, again, to make sure nothing changed. So how does the process work? Keep reading to find out.
What Is A Verification Of Income And How Does It Relate To Asset Verification
While your income technically isnt an asset, it still plays an important role in the financial reporting component of your mortgage application. When a mortgage lender requests a verification of your income, theyre checking to see if you have the means to make your mortgage payments each month. You wouldnt borrow more than you have the means to pay back, and your monthly mortgage payments are no exception. Thats why your mortgage lender will request this information its a way of making sure youre able to finance your mortgage payments.
In order to confirm your income, a mortgage lender will request a few documents. A good way to remember the documentation youll need is to remember the 2-2-2 rule:
- 2 years of W-2s
- 2 years of tax returns
- Your two most recent pay stubs
Additionally, you should have records at the ready of your most recent checking account statements, current savings account statements, monthly debt obligations and statements from any other loans you may have and your most recent credit card statements.
Make Sure Youre Employed During The Entire Loan Process
- A second VOE will be performed around the time of loan closing
- To ensure that youre still employed
- And that you havent quit, been fired, or changed jobs
- So dont mess around until your mortgage actually funds
Around the time of closing, a second VOE will be performed, known as a Funding VOE. Either a verbal one via the HR department or a refreshed report from The Work Number or a similar company called Inverify.
This is important because sometimes, for whatever crazy reason, an individual will quit their job, change jobs, or get fired during the loan application process. It sounds highly unlikely, but these things happen all the time.
Essentially, the lender needs to know youre still gainfully employed at the end of the process as well.
Anyway, armed with this information, underwriters will be able to decision your home loan with confidence, knowing youre able to make payments and satisfy repayment of the loan.
Its important for borrowers to be honest when answering employment-related questions because this information will be verified.
Interestingly, there have been cases of fake companies being set up for the express purpose of fooling mortgage lenders, even when they verify employment.
But mortgage financiers like Fannie Mae say they often appear fishy, with inflated salaries, limited work history, and pay stubs that lack the typical details regarding 401ks, health insurance premiums, and so on.
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Reasons Why Employees Quit And How It Affects Verification Of Employment
There are numerous reasons why an employee quits their W-2 job.
- Having multiple jobs in the past two years is no problem
- Most mortgage lenders will not take this against the mortgage borrower
- However, if a W-2 employee goes from a W-2 job to another W-2 job, no problem
- However, if the employee goes from a W-2 wage earner status to a 1099 wage earner job, then borrowers need to wait two years as a 1099 wage earner to qualify for a mortgage
- On the flip side, if a 1099 wage earner quits their 1099 wage earner job to a W-2 wage earner job, then only 30 days of paycheck stub is required to qualify and get a mortgage
- Two-year seasoning is not required
If a loan officer is not sure of the exact income to be used as qualified income, they should do a verification of employment before processing the mortgage loan file. This holds especially true for borrowers with irregular and/or other income such as bonus income, overtime income, and other potential qualified income.
How Long Can Mortgage Employment Verification Take
It seems like time goes by so slowly when youâre waiting for your mortgage to be approved, but in reality, how long does it actually take for your lender to verify employment? The answer is that it depends on the responsiveness of your lender and your employer.
Because verification of employment is a fairly simple process that only takes a phone call or an email, you should expect that it will only take a few days to get this part of the loan processing done, but if you work for a small business or your HR department is overwhelmed, it could take longerâfor instance, a week or more.
To avoid complications, talk to your HR representative or your manager to inform them that your loan is being processed and to be ready to verify that you presently work at the company.
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How Does A Mortgage Work
A mortgage is a loan for your house. You would use a mortgage to purchase a home.
You can also refinance the home in order to gain more favorable terms for your situation, or convert existing home value into cash.
When you get a mortgage, there are two pieces of documentation to sign. The first is a promissory note which goes over the repayment process and specifies your monthly payment and the length of the term. Its your promise to pay back the loan.
You also sign the mortgage itself which contains these financial details, but also includes the recourse a lender has if you dont make your payment, laying out specific procedures and penalties. Typically, a lender will have the ability to take the house back if you default on your payments. Once your home is paid off, the lien on your house that allows them to do this is removed.
Do You Have Any Debts
Debts are acceptable, in fact, in the eyes of a lender, its better to owe money and prove you can borrow and repay, than having never borrowed.
The moment it becomes problematic is when borrowers hit a high % usage of available credit , or when the monthly payments are factored in with the potential payments on a new mortgage, the mortgage may be deemed unaffordable.
Essentially, lenders want to see that you can be trusted to make regular, on-going payments.
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What Is Employment Verification
Verification of employment, sometimes abbreviated as VOE, is essentially proof of your income through W-2s, pay stubs, or income tax returns. This information is typically turned in with your mortgage application. An underwriter or loan officer may also call, fax, or email your employer directly to verify your employment.
Do I Have To Be Employed To Take Out A Loan
Yes, you typically you should be in employment to be eligible for a loan. The eligibility criteria will vary from loan-to-loan, with different types of lending having different requirements for their borrowers.
There also other exceptions, such as loans for pensioners, where your pension can be used in lieu of your employment income and you can also release equity from your house if you are a homeowner .
For example, our eligibility requirements for short-term loans include the following:
Must be a UK resident Must be over 18 Must be employed Must be able to prove they can afford monthly repayments Must have a valid UK bank account, email and mobile
While borrowers looking for loans with bad credit loans and CCJs can often struggle finding loans theyre eligible for, through Lending Expert, you can find such financial products where applicants with bad credit or CCJs are considered.
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How Mortgage Lenders Verify Employment
Lea Uradu, J.D. is graduate of the University of Maryland School of Law, a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, Tax Writer, and Founder of L.A.W. Tax Resolution Services. Lea has worked with hundreds of federal individual and expat tax clients.
Mortgage lenders usually verify your employment by contacting your employer directly and by reviewing recent income documentation. The borrower must sign a form authorizing an employer to release employment and income information to a prospective lender. At that point, the lender typically calls the employer to obtain the necessary information.
Employers are usually happy to help, but there are steps borrowers can take if they refuse to verify employment.
Verifying Employment Before Closing
Whether or not lenders re-check your employment on the day of the closing is per lender discretion. Some lenders like to re-verify your it just to make sure nothing changed. Again, if you changed jobs, this changes the entire dynamic of the loan. Even if your income is exactly the same, the fact that you are at a new employer means the lender must verify the legitimacy of the job as well its likelihood to continue.
Lenders verifying employment to protect everyone involved in the loan, including you. Its their job to make sure you can afford the loan beyond a reasonable doubt. They must make sure your income allows you to afford the loan. They do this by checking your debt ratio. It must fall within the guidelines of the specific loan program. If you have any worries about a lender verifying your employment, discuss it with them. The more honest you are with a lender, the more likely it is that you will walk away with the loan you need and can afford.
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What Type Of Mortgage Is Best For Me
While most lenders will assume you want a 30-year fixed, a good one should take the time to go over a number of different loan options.
It might turn out that a cheaper 5-year ARM is a better alternative if you dont plan on keeping the home for very long, or if you expect to refinance in the near future once your financial situation improves, says Robertson. Or that a 15-year fixed is totally manageable and a better value for you as a homeowner.
The bottom line: theres no one-size-fits-all solution to mortgages. Tell the lender about your plans and have them give you the pros and cons of different products.
The Importance Of Qualified Income And Verification Of Employment
Days of stated income and no income verification are long over to qualify for a mortgage.
- Borrowers can have prior bad credit
- If they have documented income, they can qualify for a mortgage loan
- If home buyers have great credit but no documented income, they will not qualify for a home loan
- Documented income is the most important factor in qualifying for a mortgage
- Lenders want to be assured borrowers have the right amount of income
- This is so they are able to afford the new proposed monthly housing payment which is referred to as PITI
- Lenders want to make sure new homeowners can afford minimum debt obligations without stress
- Mortgage underwritersalso need to be assured that the income is likely to continue for the next three years or more
- Job stability is key
- Verification of Employment will be done not just with the current employer but also with past employers as well to document they have a two-year employment history
In this article, we will cover the Verification Of Employment and how it works during the mortgage process.
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What Kind Of Savings And Assets Do You Have
The lender will want to verify how much money you currently have in your bank accounts and any investments you happen to have. You will want to have at least two mortgage payments in your savings, if possible, so the lender knows that you can pay your mortgage twice without needing to earn more income.
Lenders know that things happen when you buy a homesomething can break and require fixing, which can wipe out your bank account if you have very little money in it. Lenders want to see that you have enough money in savings to survive the first period of homeownership and still make your mortgage payments.
What Is Your Employment Status
The lender is going to be very interested in your job situation. They want to know that you are employed and will prefer if you have been working at the same job for a significant periodideally, two years or more. Since lenders prefer stability, the longer you have been at your job, the better.
When you plan on buying a home, it makes sense not to complicate the process by switching jobs not staying in your current position until your closing is one of the mortgage mistakes that many lenders and real estate agents will mention.
Changing jobs in the middle of a real estate transaction can quickly get your mortgage approval terminated. Obviously, something you will want to avoid if at all possible.
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What Types Of Loans Are There
Mortgage loans also come in many different flavors. One of the biggest points to know is whether the rate is fixed or adjustable so that it will change over time.
Loans also come in a variety of term lengths. The longer the term, the cheaper your monthly payment. The trade-off? Youll pay more interest than you would on a shorter-term loan.
Another consideration is the investor in your mortgage loan. Conventional loans require a slightly higher credit score than FHA loans, but with a high enough down payment, you can avoid mortgage insurance altogether. Meanwhile, FHA loans will allow you to qualify with a slightly lower credit score than many other options.
Two special programs are USDA and VA loans. Both feature the option to get a home loan with no down payment.
USDA loans are targeted to encourage development in rural areas or on the outskirts of suburbia.
VA loans are a benefit for qualifying active-duty servicemembers, reservists, veterans and surviving spouses of those who have been killed in action or passed as a result of a service-connected disability. For those that qualify, the VA loan also offers some of the best interest rates available under any loan option.
What Is A Verbal Verification Of Employment
Before technology streamlined the mortgage application process, mortgage lenders would send Verification of Employment forms to employers to get information about your position, income and job stability.
But then automated underwriting systems stopped requiring this in most cases, only requiring what was called alt doc from most applicants copies of their pay stubs and W-2 forms.
Today, in the wake of the Great Recession and the proliferation of poorly-underwritten loans, lenders must comply with the Ability to Repay rule, and that means making sure you can afford your mortgage. So they may call your employer and make sure that your documentation reflects your true income and status.
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How Much Should I Save For A Down Payment
There are two different pieces to this. Theres what youre required to save and then the best down payment for you given your situation.
- If you qualify for a USDA or VA loan, no down payment is required.
- If youre getting an FHA loan, the minimum down payment is 3.5%.
- If you qualify for a conventional loan through either Fannie Mae or Freddie Mac, down payments start at 3% and in no event would you have to put down more than 5% of the purchase price on a primary residence.
However, there are plenty of reasons to make a higher down payment if you can afford it.
On a conventional loan, if you put 20% down, you can avoid having to pay for private mortgage insurance . Otherwise, you can ask that it be canceled once you reach 20% equity.
On an FHA loan, youll pay mortgage insurance premiums for the life of the loan if you make a down payment of less than 10%. Otherwise, it comes off after 11 years.
Your interest rate is determined in part by a combination of your median FICO® score and the size of your down payment, so holding all other factors equal, a higher down payment should mean a lower rate.
Given this, the real answer to this question is that you should put down as much as you can comfortably afford without compromising other financial goals.
Just keep in mind youll probably have to furnish the house, as well.
Tip : Keep An Eye On Your Credit
Lenders look at your score as an indication of your ability to repay your debts. It doesnt take your income into consideration. Unlike your DTI, the higher your credit score, the more favorable position youll be in for a mortgage.
Another factor to your credit score lenders consider is your credit utilization. This ratio measures how much of your available credit you use.
For example, if you have a credit limit of $10,000 and have a $6,000 balance on it, your ratio is 0.60, or 60%. Like your DTI, the lower your credit utilization ratio, the better it is for your credit score, which means its better for your mortgage application.
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