How to get a mortgage without 2 years of work history

If you’ve changed jobs, started a new career, or are entering the workforce for the first time, that doesn’t have to derail your dream of owning a home. It’s true that lenders look at your employment history during the approval process, but having less than two years at your current job isn’t necessarily a dealbreaker. Borrowers are known to successfully obtain mortgages with relatively short work histories.

This guide will break down how to work with a lender when you have a shorter amount of time at your current job.

The quick answer: Can you get a mortgage without 2 years of work history?

Yes, it’s possible to qualify for a mortgage without 2 years of work history, but it might require you to submit more documentation to your lender. In addition to W-2s, 1099s, and pay stubs, you may need letters of explanation or statements regarding the likely continuance of your income into the future so that you can show that you’re making enough income to afford a house.

Why do lenders prefer 2 years of work history?

The preference for 2 years of steady work history comes from guidelines set by the major mortgage investors. These investors purchase loans from private lenders to return capital to the mortgage market and expand loan availability to borrowers.

Because investors purchase mortgage loans, they establish criteria to mitigate the risk associated with these debts.

While lenders prefer 2 years of work history, they can make exceptions with borrowers who have the financial means. Therefore, your lender will require you to undergo a more thorough underwriting process to verify your financial capacity for a mortgage, such as when getting a mortgage with a new job.

Income examples for getting a mortgage without 2 years of work history

Here are some examples of how you might achieve a mortgage without work history:

• Getting back into the workforce after a hiatus: Let’s say you’re getting back into the workforce after a hiatus due to children, a health condition, or other personal matters. While you don’t have 2 years of work history, you’re starting a job with a hefty salary. The house you have in mind fits well with the debt-to-income ratio standards lenders use. Furthermore, you can point to a solid credit profile that indicates your reliability as a borrower in the past. In this case, communicating with your lender about your situation can result in loan approval.
• After divorce: On the other hand, say you’re divorced and haven’t worked in over a decade. However, you receive $2,000 a month in alimony. You also receive monthly income from a rental property. Lastly, you recently inherited a substantial amount of wealth from your parents, which has been deposited into various accounts, totaling $150,000. These resources position you to qualify, even if you haven’t worked for the past two years.

What else do lenders look at during underwriting?

Employment history isn’t the only thing lenders look at. The amount of income is also a factor, as well as your assets, credit score, and debt-to-income ratio (DTI).

Lenders look at your income to ensure you make enough to cover your monthly payments. Your credit score is the three-digit number that summarizes your ability to repay debt, while DTI is the percentage of your gross monthly income that goes toward debt. Lenders typically look for a DTI of 43% or less.

Learn more about manual underwriting and how it works.

7 things lenders look for in your employment history

Mortgage lenders will scrutinize your employment history during underwriting to assess your ability to repay the loan, but keep this in mind: Everyone’s situation is unique, and not having 2 years of work history doesn’t automatically disqualify you.

However, lenders will require additional documentation and a thorough explanation for the lack of work history for mortgage qualification.

1. Job or career change

You may also be asking, “Can I get a mortgage with a new job?”

If you've recently changed jobs, lenders may assess the stability of your new position and the industry in which you work. Changing jobs within the same industry can be viewed more favorably than switching to a different field where you lack experience. Consistency in the type of work may indicate stability.

2. Employment gap

You can qualify for a mortgage with a work gap of 6 months or longer, but lenders may want to know the reason behind the period of unemployment. For example, if you can provide proof that the gap was because of a layoff, parental leave, caring for a family member, or going back to school, you should be in the clear.

3. Seasonal income

Seasonal employees can qualify based on their annual income and seasonal employment history. For example, say you’ve worked for the last 2 years at a seasonal job. You work 6 months out of each year and make $60,000 per year. With a low enough DTI and the right price range for the home, you can qualify for a mortgage.

4. New job after school

Lenders understand that recent graduates who have a new job typically don’t have a robust work history because they were in school for years. Fortunately, if you get a job out of college that aligns with your career goals and pays well, you can discuss your finances with your lender.

Some lenders offer loans specifically for recent medical school graduates and other early-career medical professionals. For example, physician loans are available to resident doctors due to the promising career path available to doctors.

Rocket Mortgage doesn’t offer physician loans at this time.

5. Recently left military service

If you’ve left the military service, you can qualify for a VA loan by submitting a Certificate of Eligibility (COE) and a statement of service with your application.

While lenders don’t require employment for VA loans, they usually impose a DTI standard. As a result, some kind of income is generally necessary to qualify.

Likewise, borrowers who have recently completed their military service and have less than 2 years of employment history can provide evidence of their employment prospects, proof of military service, or a plan to reenlist.

6. Self-employment

Even if you’re self-employed, your financial history matters as much as your present income when it comes to securing a loan.

To gauge your financial stability, your lender will request a few key documents: personal tax returns (if you're paid through a corporation or partnership or run a sole proprietorship) and business tax returns.

When submitting business taxes, you may be asked to provide specific forms, such as a Schedule C, Form 1120-S, or K-1, depending on your business setup.

Lenders may also ask applicants to provide monthly or quarterly bank statements, along with their profit and loss statements.

7. Retirement

You can still qualify for a mortgage even if you’re retired. A retiree’s proof of income can include Social Security benefits, pensions, investment accounts, and other sources of income. As a result, the lack of employment income isn’t an issue if you receive sufficient financial distributions every month in retirement income.

How to get a mortgage with less than 2 years of income

If you’re looking for strategies to get a mortgage with less than 2 years of consistent income, consider these ideas:

Make a larger down payment

As mentioned at the beginning of the article, a lack of income may signal to lenders that you are a riskier borrower. To offset perceived risks, lenders may require a larger down payment from borrowers with less than 2 years of consistent income.

Learn more about the average down payment on a house.

Demonstrate good credit

Lenders will consider your credit score, credit history, and income on your application. A good credit history can help minimize concerns over employment gaps.

Credit scores correspond to the following categories:

• Excellent: 800 – higher
• Very good: 740 – 799
• Good: 670 – 739
• Fair: 580 – 669
• Poor: Below 580

You can raise your credit score by paying loans on time, borrowing below your credit limit, having a lengthy credit history, and eliminating errors on your credit report.

Accept less favorable terms

You may have to consider a higher interest rate to compensate for your present income and employment gaps since lenders may think you present an additional risk. In many cases, borrowers choose to refinance¹ into a lower rate when their income improves down the road, often opting for an adjustable-rate mortgage (ARM) at first to get a lower introductory rate. You can then refinance or sell the home before the initial rate ends.

Provide alternate sources of income

You can also share other paperwork that documents alternate sources of income that can also show lenders your financial capabilities, including:

• Social Security
• Disability
• Pension income
• Alimony
• Child support
• Structured settlements
• Annuity payments
• Other investment income or assets

Your lender may be able to offer more information about acceptable alternate income sources.

Find a co-borrower or co-signer

Adding a co-borrower or co-signer to your application can increase your chances of qualifying because lenders factor in both signers’ credit scores and income.

Consider government-backed loans

Government-backed loans, such as Federal Housing Administration (FHA) loans or Department of Veterans Affairs (VA) loans, have more lenient financial requirements. As a result, they are more manageable for borrowers with less income and limited work histories. Both loans require at least 6 months of consistent income.

FAQ

Let’s walk through a few more questions you might still have about providing your work history.

How many months of income do I need to qualify for a conventional mortgage loan?

Requirements will vary depending on the lender, mortgage type, and the type of income being reported. Check with your lender for more information about how many months of income you’ll need to show to qualify for a mortgage.

What documentation do I need as a seasonal or self-employed worker?

You’ll need to provide W-2s, tax returns, pay stubs, bank statements, and any other documentation proving compensation for the past 2 years. This documentation shows your financial ability to take on a mortgage.

What’s the difference between part-time and seasonal income when applying for a mortgage?

A part-time position involves fewer working hours per week than a full-time role, meaning your income is usually lower than that of a full-time employee. On the other hand, seasonal work involves earning wages for part of the year through a job such as ski lift operation or ocean fishing. A lower income can reduce your chances of qualifying for a loan.

How are employment gaps viewed?

While gaps in employment aren’t considered ideal, a letter of explanation can be helpful. If you have a letter of explanation, backed up by a strong employment history before and after the gap, having employment gaps in your history doesn’t have to be a deal-breaker.

How does changing jobs affect my application?

If you're going from one job to another in the same industry, mortgage lenders tend to have more confidence in your history and the possibility of continued or higher income. However, lenders will review each situation on an individual basis, so it’s important to remember that before you assume changing your job will affect your ability to get a mortgage.

The bottom line: Getting a mortgage without 2 years of work history may be possible

Asking yourself questions about your ability to afford a mortgage payment every month is a good first step.

The key to obtaining a mortgage is to provide documentation that demonstrates your financial ability to afford your monthly mortgage payment, despite your unconventional circumstances. Keep in mind if you’re unsure about your work history that transparent communication coupled with strategies such as larger down payments, good credit, and government-backed loans can help.

If you’re ready to purchase a house, you can explore your options with Rocket Mortgage today.

¹ Refinancing may increase finance charges over the life of the loan.