The Two-Year Rule
When I graduated from college, one of the first pieces of advice I got from my parents was to establish my career at a reputable company and to stay there – forever. Okay, maybe not forever. But they really emphasized the importance of settling into a job where I could see myself for the next several years.
At the time, I took their advice with a grain of salt. Why should I commit to one job and climb the traditional ladder when I can explore my options and diversify my résumé by working at several different companies?
As a generation, millennials are stereotyped as noncommittal job-hoppers. We’re always on the hunt for the next best thing: more responsibility, cushy benefits, and a higher salary. However, trying to figure where we fit in the professional world may come at a price when applying for a mortgage – literally.
Along with your credit score, your job history plays a major role in determining whether or not you qualify for a mortgage. Conventional wisdom suggests holding down the same job for two consecutive years prior to applying for a home loan. The reason for this is that underwriters are looking for a likelihood of job continuance and assurance you can repay your loan. While the two-year rule isn’t absolutely necessary, it does make the process easier and may even help you lock in a lower rate.
So, what happens if you’re among the 35 percent of millennials who changes jobs every year? Or what if you have a situation that resulted in a gap in your employment? Don’t worry – your dreams of homeownership aren’t dead. Some loan programs will take circumstances into account and make exceptions.
For example, if you recently graduated from school and are now working in an industry that aligns with your field of study, you can still get approved for a mortgage. Those who were in the military, were laid off for a period of time, or have been working in the same industry for two years but happened to switch jobs will also be considered. It all depends on the loan program you are looking to qualify for.
Self-employed? You can still get a mortgage
Another subset of the population that may have a tougher time qualifying for a mortgage are the self-employed. If you’re one of the roughly 10 million Americans who work for themselves, getting approved for a mortgage isn’t impossible. It will, however, require some advanced planning. For starters, simply asserting that you make X dollars per year isn’t going to cut it. This is because your tax return (after taking a slew of deductions related to your business) doesn’t reflect your true income.
To get over this hurdle, Pava Leyrer, training and development manager at Northern Mortgage Services, suggests writing off fewer expenses in the two years leading up to your home purchase, as well as cleaning up your finances so your personal and business purchases don’t comingle. You can also show year-over-year increases in profitability to make your case.
The bottom line
Many folks will tell you that you must have the same job for two consecutive years in order to qualify for a mortgage. This isn’t necessarily true. Every situation is unique, and as long as you can prove job continuance and show lenders that you have the ability to repay your loan, you have a pretty good chance of securing financing for the home of your dreams.