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Do I Need Two Years of Employment to Get a Mortgage in California?

You might have heard that borrowers need at least two years of employment to qualify for a mortgage loan in California. And for the most part, this is true. Many home loan programs require lenders to verify that the borrower has two years of consistent employment and income.

But that’s a general rule that doesn’t cover every lending scenario. In many cases, lenders can make an exception to the two-year employment rule. Often, this requires nothing more than a letter or explanation. Read on to learn more!

The Two-Year Employment Standard

While researching the mortgage process in California, you might have encountered some articles that mention a two-year requirement for employment and income. This is a commonly used standard within the mortgage industry, when it comes to documentation.

Most lenders like to see steady employment and/or income for at least the past two years. In fact, these guidelines often “trickle down” from secondary organizations like Freddie Mac and Fannie Mae — organizations that purchase loans from lenders.

But in many cases, it’s not actually a deal-breaker. There are many well-qualified borrowers with job gaps within the last two years. Lenders are mostly concerned with your income stability at the time you apply for the loan, and the probability of continued employment.

Requirements for Conventional Mortgage Loans

We mentioned Freddie Mac and Fannie Mae earlier. These are the government-sponsored corporations that buy home loans from lenders and sell them through the “secondary mortgage market.”

These two groups also impose requirements and criteria for the loans they’re willing to purchase. Mortgage lenders pay close attention to those criteria, especially if they want to sell their loans to Freddie or Fannie. So, the rules and criteria established by these two groups can also affect borrowers (e.g., home buyers) within the primary mortgage market.

And that brings us back to the two-year employment requirement for California mortgage loans. Here’s what Freddie Mac says about it, in their official Seller / Servicer Guide:

In most instances, the Borrower should have at least a two-year history of primary employment documented on Form 65, Uniform Residential Loan Application and verified in accordance with Topic 5300.

But notice the language being used here. They state that “in most instances” borrowers should have a two-year employment history to qualify for a conventional mortgage loan. That means there are exceptions to the rule.

Their guide goes on to state: “When a Borrower has less than a two-year history of primary employment, the Seller [i.e., lender] must provide its justification for determining that the employment is stable.”

To determine this, mortgage lenders can consider factors such as the borrower’s payment history on current and past debts. So, a person with sufficient income and a solid history of repaying debts might still qualify for a mortgage loan in California — even without a consecutive two-year employment history.

Fannie Mae, the “sister organization” of Freddie Mac, uses similar language in their loan selling and servicing guides.

FHA & VA Loan Programs Are Also Flexible

The FHA loan program, which is popular among first-time buyers in California, also has a two-year requirement for income and employment.

HUD Handbook 4000.1, which covers the FHA loan program, says the following: “For all Employment related Income, the Mortgagee must verify the Borrower’s most recent two years of employment and income.”

But here again, exceptions can be made for borrowers who have gaps during that timeframe. To “verify” the borrower’s previous employment situation simply means to review it, and to document it when applicable. If the borrower is well-qualified in all other regards, a gap in employment won’t necessarily disqualify them.

The VA loan program has similar guidelines and exceptions for borrowers.

When you apply for a mortgage loan — whether it’s FHA, VA or conventional — the bank or mortgage company will review all aspects of your financial situation. Your employment and income status weigh a lot, for obvious reasons. But it’s the bigger picture that matters.

All of these loan programs direct lenders to consider the “probability of continued employment.” In other words, lenders should assess the likelihood job continuance. If the borrower is currently employed and seems likely to maintain that employment going forward, a gap in work history might not be an issue.

Disclaimer: This article answers the question, Do I need two years of employment to get a mortgage loan in California? It provides general examples and guidelines based on industry norms. Every lending scenario is different, so the scenarios described above might not pertain to all borrowers.

Mike Trejo

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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