Getting a mortgage can be an exciting yet stressful process. You’ve found your dream home and are eager to close and move in. But before you get the keys, your lender needs to verify your income and employment. This crucial step ensures you can actually afford the monthly payments.
So how and when do lenders confirm your job status? What happens if you switch employers midway through the application? Let’s explore the mortgage employment verification process from start to finish.
Why Lenders Verify Employment
Mortgage lenders verify employment for a few key reasons
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To confirm your income – Your job provides the stable monthly income needed to repay the loan Lenders need to validate your wages and salary
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To check job stability – Lenders want to see you’ve held consistent employment and aren’t frequently switching jobs. This demonstrates you can make payments long-term
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To detect fraud – Employment verification prevents fraudulent loan applications. It ensures you aren’t inflating your earnings.
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To meet underwriting requirements – The lender’s underwriters mandate income and employment verification to approve loans. It’s part of their due diligence.
In the end, proving your income is very important for getting a mortgage. Now let’s look at how banks actually perform employment verification.
How Mortgage Lenders Verify Your Job
According to the Consumer Financial Protection Bureau (CFPB), lenders use a few common methods to verify employment:
Verbal Verification of Employment
This is the most popular approach. The lender contacts your employer’s HR department by phone. They confirm your job title, hire date, income, hours, and other details verbally.
Written Verification of Employment
Some lenders require written proof from your employer. For example, they might ask HR to fill out a form with information about your pay, position, dates of employment, and more.
Pay Stubs
Lenders often review your most recent pay stubs during underwriting. The stub proves your income amount and frequency of pay. Provide as many consecutive stubs as possible.
W-2s
Your W-2s from the last two years also evidence your earnings history over time. Make sure to include all your W-2s if you held multiple jobs.
Tax Returns
Lenders need two years of business and personal tax returns from people who are self-employed who want to borrow money. These papers show that you make money from a small business or freelance work.
When Does Employment Verification Happen?
Mortgage lenders actually confirm your employment twice during the loan process:
1. Initial Underwriting Stage
The first verification happens early on when the lender underwrites your application. An underwriter reviews your income, assets, credit and other factors to decide on loan approval. At this point, they verify your job to confirm your income level meets debt-to-income requirements.
2. Right Before Closing
Lenders re-verify employment shortly before the closing date. This ensures nothing changed since initial approval. You won’t get loan funding or home keys until they complete this final check.
So your lender will likely call HR sometime before closing and again one to two days before the closing. What will happen if your job changes during the process?
What if You Switch Jobs or Get Fired?
You’re not allowed to switch employers or get laid off during the mortgage application. Any job changes must be reported immediately to your lender and underwriter. They will likely halt the application process and reverify your income.
Here are possible outcomes if your job status changes:
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New job with same/higher income – You may still qualify if your earnings are stable. But expect delays as HR confirms your new employment.
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New job with lower income – The lender will likely deem you ineligible based on lower debt-to-income ratios. You may have to reapply later when income increases.
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Got laid off – Unfortunately lenders will not approve a mortgage without steady employment. You’ll need to find a new job before reapplying.
The bottom line? Don’t switch employers or quit your job until after closing. Inform your lender immediately of any involuntary job loss. Delays or denial are likely if your income changes during underwriting.
Tips for a Smooth Verification Process
You can make the employment verification process quick and seamless by following these tips:
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Inform your HR department – Let them know to expect the lender’s call.
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Provide accurate employer info – Verify the name, address, phone number are all correct.
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Submit all requested documents – Pay stubs, tax returns, W-2s etc.
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Avoid job changes – Stick with your current employer until after closing.
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Report income changes – Immediately notify your lender of any layoffs or new jobs.
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Be patient – It takes time for lenders to verify your personal financial information.
Following these best practices will streamline employment confirmation and help you get keys to your new home faster.
The Takeaway
Mortgage lenders are required to check your employment status and income before approving a home loan. They will contact your employer twice – during underwriting and right before closing – to validate your job stability and wages. Any changes in your employment must be reported to the lender immediately and will likely delay closing. Stick with your current job, submit all requested docs, and keep your lender updated for the smoothest verification process.
Verification for Self-Employed Individuals
Many people who take out mortgages are self-employed. In this situation, lenders often require an Internal Revenue Service (IRS) Form 4506-T. This form is a request for “Transcript of Tax Return” and allows the lender to receive a copy of the borrowers tax returns directly from the IRS. In a self-employed situation, the lender may also ask for attestation by a certified public accountant (CPA) to confirm income.
The Verification Process
In general, lenders verbally verify the information borrowers provide on the Uniform Residential Loan Application. However, they may opt to confirm the data via fax, email, or a combination of all three methods.
Mortgage lenders use this information to calculate several metrics to determine the likelihood that a borrower will repay a loan. A change in employment status can have a significant impact on the borrowers application.
Verification Of Employment Before Closing Mortgage
FAQ
Can a lender verify employment before closing?
A lender can check your employment in a number of ways, but a lot of them call your employers a day or two before the closing to make sure you are still working. If you want to avoid problems at the last minute, let the lender know about any changes to your job before the closing. When does a mortgage lender verify employment?.
Do banks verify employment on closing day?
Banks can call your employer to verify employment for personal loans. But when you apply for a personal loan, most banks will only need to see your tax return or bank statement to prove that you make enough money. Verification of employment (VOE) is a step in the underwriting process. Do mortgage lenders check employment on the day of the closing?
Do mortgage lenders verify employment on closing day?
One step in the underwriting process is the verification of employment (VOE). The mortgage lender needs to check that you are and have been employed to ensure they’re taking into consideration all of your income sources. This confirms that the borrower can cover their down payment and any closing costs. Do Lenders Verify Employment On Closing Day?
Do Loan Companies check employment after closing?
They don’t usually check your employment after closing, but they may in some cases. Loan companies verify employment multiple times because they need confidence you have a stable enough income to buy a home. A mortgage is a significant investment for a bank, and job verification is one way the bank minimizes risk.
Can a bank verify employment?
Banks can call your employer to verify employment for personal loans. But most banks will simply verify your income through a tax document or bank statement when evaluating your application for a personal loan. How do mortgage lenders verify employment?
When does a mortgage lender verify employment?
That process happens days to weeks before closing. However, since mortgages can take a month or two to settle, the lender may perform a second verification of employment closer to the closing date, to make sure your circumstances haven’t changed in that time. What Happens if a Lender Cannot Verify Your Employment?
What do lenders check right before closing?
Some things a lender checks before closing include your credit score, income and debts. Lenders are primarily looking to ensure nothing has changed since you initially applied for the mortgage.
Do lenders actually verify employment?
Lenders verify employment to assess the borrower’s ability to repay the loan. Consistent employment and income indicate financial stability, making the borrower a lower risk.
How does a bank verify employment?
Mortgage lenders usually verify income and employment by contacting a borrower’s employer directly and reviewing recent employment and income documentation.
Do lenders check your bank account before closing?