How long you have to be at a job to qualify, by mortgage type

Exactly how long do you have to be in a job to get a home loan?

As with many things in mortgage lending, the answer is “it depends.” The requirements for employment history vary by loan type.

If you’re on the edge of mortgage qualifying based on your job history, it’s worth looking into different kinds of mortgages to see which one suits you best.

Following is a breakdown of how long you have to be at a job to qualify for each major loan type.

Conventional mortgage employment rules

Conventional loans — the most popular type of mortgage — generally require at least 2 years employment history to qualify.

However, less than two years may be acceptable if the borrower’s profile demonstrates “positive factors” to compensate for shorter income history. Those compensating factors might include:

• Education —For instance, you have a four-year degree in the field in which you now work. That education almost always counts as work history. New grads typically have no problems qualifying despite a brand-new job
• A letter of explanation for a job change — If you recently changed jobs  changed fields, try to tie them together with a great letter of explanation. Present a case why this new job is just a continuation of your previous one. What skills did you build there that you now are using?

Keep in mind that the above only applies to salaried, full-time work.

You’ll likely need at least two years of reliable income if you mainly earn bonuses, overtime, commission or self-employment income.

And if you take on a second, part-time job for extra earning, you’ll need a two-year history for lenders to consider it.

FHA mortgage employment rules

FHA is more lenient about work history.

FHA loan guidelines state that previous history in the current position is not required. However, the lender must document two years of previous employment, schooling, or military service, and explain any gaps.

If an extended gap is present, the applicant must be employed in the current job for six months, plus show a two-year work history prior to the gap.

FHA lenders want to see that you are qualified for your current position and that you are likely to remain in that position or a better one in the future.

Don’t worry if you have changed jobs frequently in the past two years. This is acceptable as long as each job change was an advance in your career.

Write a letter explaining how each move benefitted your situation — more money, more responsibilities, a company with more opportunity.

As with other loan types, FHA requires two years of documented history of overtime, bonus, and other variable income.

VA mortgage employment rules

VA loans allow you to qualify with less than two years of employment. The lender documents your work history and requests proof of relevant schooling or military service.

These loans are tougher if you have less than 12 months of employment total (including all jobs). The VA lender may request the probability of continued employment from your current employer.

Additionally, lenders examine past training or relevant experience. The VA requires that the lender prove that an applicant has the needed skills for the current job.

For active military servicemembers, VA lenders consider income stable if the applicant is further than 12 months from his or her release date.

USDA mortgage employment rules

USDA mortgages offer many benefits, such as zero down payment requirement and credit score flexibility. And they are also very lenient about employment history.

According to guidelines, there is no minimum length of time applicants must work in their current position before applying for the mortgage.

The applicant must simply document work history for the previous two years. It’s okay if he or she has moved around between jobs. However, the applicant must explain any significant gaps or changes.

If you are a USDA applicant, you must document that you were working toward or obtained a degree via college transcripts during the gap. Or prove your military service with discharge papers.

Both of these factors help satisfy your work history requirement.

While you can qualify for a USDA loan with a new job, you must prove that your current position is stable, so that you can make your mortgage payment long-term.

How much income do you need for a mortgage?

To get mortgage-approved, it’s not just your job that matters — your income matters, too.

However, the methods most mortgage lenders use to calculate income can put some borrowers at a disadvantage.  This is because not all income may be counted as “qualifying” income.

Here’s how most lenders view different types of income when it comes to mortgage qualifying:

How salary is calculated for a mortgage

When your income is an annual salary, your lender divides your annual gross (before tax) income by 12 months to determine your monthly income.

In general, you do not need to show a two-year history — especially for jobs which require specific training or background.

How bonuses are calculated for a mortgage

When you bring home an annual salary plus a bonus, your lender calculates your income in two parts.

First, your lender divides your annual salary by 12 months to determine your monthly income.

Then your lender looks at bonus income separately.

If you have received bonus income for at least two years,  the employer indicates that bonus income will continue, lenders can consider it “qualifying” income.

Underwriters normally divide your last two years of bonus income by 24 months to arrive at a monthly total.

However, as with any income, if lenders see that it has been dropping year-over-year, they may choose to discount or even ignore this income.

How hourly income is calculated for a mortgage

Typically, lenders multiply your hourly rate by the average hours you work.

The table below shows Fannie Mae’s guide to income calculations.

Erratic work hours or recent job changes can harm your income calculation.

Those with little work experience, who also earn hourly wages can experience difficulty when applying for their first mortgage.

How overtime pay is calculated for a mortgage

When you earn wages plus overtime pay, your lender totals your prior two years of overtime pay and divides by 24. That’s your qualifying overtime pay.

Again, if the extra pay declines over time, the lender may discount it. And without a two-year history of overtime pay, your lender will probably not allow you to claim it on your mortgage application.

How commission income is calculated (if it’s 25 percent or more)

When you earn at least 25 percent of your income from commissions, your base income is the monthly average of your last 24 months of income.

If you have less than 24 months of commissioned income, your lender probably can’t use it for qualifying.

There are exceptions. For instance, if you work for the same company, doing the same job, and earning the same or better income, a change in your pay structure from salary to fully or partially commissioned might not hurt you.

You have to make the argument, however, and get your employer to confirm this.

How self-employed income is calculated for a mortgage

When you are self-employed, mortgage lenders require at least two years of verified income. They then use a complicated form to determine your “qualifying” income.

But understand that your gross revenue (before deductions) is not the figure that lenders use when calculating your qualifying income.

Lenders have been known to make exceptions on this rule — specifically, for recently self-employed persons who have started a business in a “related field.”

It’s not uncommon today for employees to continue working for the same company, switching to “consultant” status, which is self-employment, but getting the same or more income. These applicants can probably skirt the two-year rule.

Find out if you qualify for a home loan

You might not have a traditional, two-year employment history. But that shouldn’t stop you from getting a mortgage if you have steady income.

The key is to find a lender willing to work with you.

Many lenders are more flexible than they used to be. So you have the ability to shop around and make sure you get the best offer, just like any other home buyer.