How To Get A Mortgage Without 2 Years Of Work History

Although rolling in a wheelbarrow of cash to your lender’s office would be a convincing way to start a successful mortgage application, most borrowers come in something more modest: a few paystubs and 2 years of tax returns. While these documents are conventional for loan applications, some borrowers have less than 2 years of work history, meaning they can’t provide the requested W2s. However, this wrinkle doesn’t spell doom for borrowers who want a mortgage without 2 years of work history to qualify them. Here’s how to get a mortgage without a traditional work history and ensure you get a loan you can afford.

Can You Get A Mortgage Without 2 Years Of Work History?

When you apply for a home loan, you’ll submit a set of information to your lender to qualify for a mortgage. Ideally, your application demonstrates your ability as a borrower. For instance, you’ll provide your credit score, borrowing history, and debt-to-income ratio. These financial metrics are crucial in illustrating your responsibility with debt.

Additionally, your work history is a critical part of your application. Because the average borrower generates their income through a job, showing that you currently work and have worked in the past indicates your ability to repay the loan. Little to no work history leaves room for doubt about whether you’ll repay your loan.

Fortunately, work history isn’t essential for mortgage qualification. Remember, all your work information is a means to understanding if you have the financial resources to repay your loan. So, if you have other means of repaying the loan, you can include this information in your application.

For example, you might be getting back into the workforce after a recess 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.

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 wealth from your deceased parents, so you have $150,000 in various financial accounts. These resources position you to qualify even though you haven’t worked for the past 2 years.

Situations like these don’t necessarily disqualify you from a mortgage. A more thorough list below will explain situations where borrowers without adequate work histories can get a mortgage. However, before that, it’s vital to consider the reason lenders ask for a work history in the first place and how it relates to your mortgage application.

Why Do Lenders Prefer 2 Years Of Work History?

The 2-year income preference comes from guidelines set by Fannie Mae and Freddie Mac. These government-sponsored enterprises purchase loans from private lenders to return capital to the mortgage market and expand loan availability to borrowers.

Because Fannie Mae and Freddie Mac purchase mortgage loans, they set criteria to reduce the risk of taking on these debts. As a result, they impose a set of criteria borrowers must meet to show they are ready to take on a mortgage. Fortunately, lenders can exercise some flexibility with the guidelines, such as allowing borrowers with different work histories to qualify for a mortgage.

So, while lenders prefer 2 years of work history because it signifies financial stability, they make exceptions with other borrowers who have the financial means without the traditional 9-to-5 job. In these cases, a more thorough underwriting process is necessary to verify the borrower’s financial capacity for a mortgage.

What Will Lenders Look For In Your Employment History?

Mortgage lenders scrutinize an applicant's employment history during underwriting to assess their ability to repay the loan. Everyone’s situation is unique, and an application without 2 years of work history doesn’t automatically disqualify you. However, lenders will require additional documentation and a thorough explanation for the lack of a work history. Here are the various ways to explain your employment history on your mortgage application.

Job Or Career Change

If you've recently changed jobs, lenders may assess the stability of your new position and industry. 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.

Remember, lenders want to see progress in your career because it indicates a higher salary and a solid work ethic. Conversely, a job loss or career change resulting in a drop in income or unpredictable paychecks can raise red flags.

Employment Gap

A borrower 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.

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, you can qualify for a mortgage.

New Job After School

Lenders understand that recent graduates who have a new job typically don’t have a robust work history because of their education. Fortunately, if you get a job out of college that aligns with your career goals and pays well, you can discuss your financial stability with your lender. Some schooling may be eligible to meet the history requirements, a lender may request transcripts to verify. Additionally, some lenders offer loans for recent medical school grads and other early career medical professionals. Specifically, physician loans are available for resident doctors because of the promising career path.

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 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 necessary to qualify. Likewise, borrowers who have recently ended their military service and have less than 2 years of employment history can provide their employment prospects, military service, or a plan to reenlist. These aspects can strengthen an application because they show your future potential to generate income.

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.

This can include personal tax returns (if you're paid through a corporation, partnership, or run a sole proprietorship) and business tax returns.

When submitting business taxes, they may ask to see specific forms like 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.

Retirement

A retiree’s proof of income can include Social Security, pensions, investment accounts, and other income sources. As a result, the lack of employment income isn’t an issue if you receive sufficient financial distributions every month.

How To Get Approved With Less Than 2 Years Of Income

No one’s mortgage application is perfect, so less than 2 years of income isn’t the end of your home buying aspirations. You can compensate for many issues with your application, including work history, through the following:

Make A Larger Down Payment

Lenders may require a larger down payment from borrowers with less than 2 years of consistent income to offset perceived risks. For example, a $250,000 30-year mortgage with a 7.5% interest rate requires a monthly payment of $1,748. However, a $100,000 down payment lowers your principal to $150,000. This amount translates to a monthly payment of $1,049. So, if you recently got a well-paying job but lack a robust work history, your down payment can lower the financial demands of your mortgage.

Demonstrate Good Credit

Lenders consider a borrower’s credit score, credit history, and income on an application. So, excellent credit and a good credit history can help minimize concerns over employment gaps. Specifically, a score of 740 or higher indicates a superb borrowing history and a commitment to paying debts on time.

Accept Less Favorable Terms

Borrowers with income and employment gaps may have to accept a higher interest rate to compensate for the additional risk they present. However, borrowers can refinance into a lower rate when their income improves down the road.

For this reason, some borrowers choose an adjustable-rate mortgage (ARM) to start homeownership with a lower introductory rate. The borrower can then refinance before the initial rate ends. Beware, failing to refinance in time could mean taking on a steep interest rate and potentially increasing monthly mortgage payments.

Provide Alternate Sources Of Income

Providing paperwork of alternate sources of income can also show lenders your financial capabilities regardless of your work history. The following can improve your mortgage application:

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

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 score and income. This way, you’re combining forces with another borrower to afford your house payment.

Consider Government-Backed Loans

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

Be Transparent

Federal law requires lenders to perform their due diligence before approving a loan. For this reason, lenders may verify the reasons behind any gaps in employment. Borrowers who misrepresent themselves or fail to disclose requested information may delay or derail loan approval. So, being upfront and honest is the best way to get approval.

Mortgage Work History FAQs

These frequently asked questions provide insight into how to qualify for a mortgage without 2 years of 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.

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

Borrowers will need W-2s, tax returns, pay stubs, bank statements, and any other proof of 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?

Part-time positions involve fewer working hours per week than a full-time role, meaning your income is usually lower than a full-time employee. A lower income can reduce your chances of loan qualification. On the other hand, seasonal work means earning wages for part of the year through a job like ski lift operating or ocean fishing. These jobs don't provide steady income throughout the year, possibly impeding your ability to afford a mortgage.

The Bottom Line

The journey to secure a mortgage without the standard 2-year work history is feasible for borrowers in various situations, such as recently graduating from college. The key is to provide documentation showing your financial ability to afford your monthly mortgage payment despite your unconventional circumstances.

As a result, transparent communication coupled with strategies such as larger down payments, good credit, and government-backed loans can bring success in the mortgage application process. Think you’re ready to take the next step, start a mortgage application to see what mortgage you qualify for.