Employment documents are essential for home loan applicants in order to demonstrate they have steady, dependable income that will cover their mortgage payments. This is especially pertinent for self-employed borrowers, those receiving variable wages or having other sources of income such as child support payments.
Lenders typically require a two-year work history as proof that you will repay your mortgage if you lose your job or switch jobs. This gives them peace of mind that you have enough income to cover any potential mortgage payments should something arise during that period.
Lenders commonly request W-2 forms from employers, tax returns for the last two years and pay stubs as proof of employment. These documents enable lenders to accurately calculate your annual income and monitor any fluctuations.
IRS W-2 Forms
Lenders will require the originals of your two most recent W-2 forms from your employer(s). They should be computer-generated or typed and clearly identify you as an employee, along with showing your name, address and social security number. You may also provide copies of paystubs which list both employer’s name and contact info as well as how much income was earned during that period.
Personal Federal Income Tax Returns
Lenders typically require your last two years’ personal federal income tax returns, signed and with all relevant schedules attached. Self-employed borrowers must also supply a copy of their tax return transcript from the IRS as well as copies of any 1099-MISC forms received from clients.
If you have had more than two employers in the last two years, a written explanation of any employment gaps over 30 days must be provided. Depending on the process, contact may need to be made with former employers to obtain verification of employment.
Employer Verification
Most mortgage lenders verify your employment by contacting either current or previous employers using a Request for Verification of Employment (VOE) form or an authorized third-party service. The VOE should authorize the lender to receive verifications of employment and income from either party, typically signed on company letterhead.
This process may take a few days, but it is usually swift and efficient if the processor can quickly contact the right individual. Otherwise, they may need to call several times before finding someone who can provide the lender with necessary information.
Mortgage applications are highly personal documents, and as humans they must be treated individually by the lender. That’s why gaps in employment due to medical situations, maternity leaves or returning to school may be major factors when applying for a loan from many mortgage lenders.
Mortgage lenders sometimes request the services of a CPA to verify your income. They may also check regulatory filings and licensing bureau databases for further verification.
When applying for a mortgage, employers typically request your employment documentation. Whether it’s online or in-person, be prepared with all necessary documents and information so the lender can evaluate your creditworthiness and confirm you can afford your monthly mortgage payments.
