Are you excited about making your American dream a reality? Do you fantasize about having a home of your own with a big backyard and cozy front porch but are nervous that your lack of employment history might disqualify you from getting approved for a loan? Before you talk yourself out of it, read this article! You might be surprised to find that you may be able to use college as your work history.
Ability to Repay
When you apply for a home loan, the lender will want to feel confident that you can and will repay your mortgage. Your credit rating represents your willingness to repay the loan; your income represents your ability to repay it. Both are essential factors in qualifying. To determine your willingness and ability to pay off your loan according to the terms, they will take a good look at your employment history.
The underwriter will review the jobs you’ve had in the past, your current employment, and the job you might have in the future. He or she will want to determine that you have a clear plan for your career. They probably realize that as a first-time home buyer, you may lack the employment history of a more experienced home buyer.
The Two-Year Rule
It’s typical for lenders to consider your past two years of employment. Please don’t panic; it doesn’t mean that you must have been traditionally-employed during those past two years. It just means that they will review it. There are many types of scenarios. For example, if you were an accountant in the real estate industry, and changed jobs to be a staff accountant in the manufacturing field, it may be considered an acceptable situation by a lender.
Another common scenario is if you spent the last four years in college, and worked a couple of temporary intern jobs during the summer. Then, upon graduation, you got a full-time position in your field of study. In this situation, the fact that you’ve only been working full-time for about a year probably won’t hurt your mortgage approval chances, but different lenders have different requirements.
Requirements for Different Loan Programs
There are different requirements for conventional loans and government-backed loans. The length of your employment history might be one of the main factors in determining your type of loan. For instance, usually getting an FHA loan with less than two years of employment is more straightforward than trying to qualify for a different kind of loan program.
Typically, you need two years of related work or educational history to qualify for a conventional loan. However, sometimes less than two years is acceptable to underwriting if you can show “positive factors” to compensate for shorter employment history. Education is usually considered a positive factor if you have a four-year degree in the field in which you work now.
The bottom line is that you need to talk with your favorite loan representative to determine which loan program is best for you when considering your unique circumstance.
Note: Opinions expressed are solely my own and do not represent the views of my employer