Reader question: “I have heard that mortgage lenders typically want to see at least two years of steady income and employment for borrowers who are applying for a home loan. I have a small gap in employment, but I think I make plenty of money to qualify for a loan. The gap was due switching jobs, and it was only a couple of weeks. Aside from that, I’ve been working steadily for more than ten years. How many years of income do I need to get a mortgage loan? Is there really a two-year rule, and if so are there any exceptions to it for well qualified borrowers?”
Yes, there is a standard within the mortgage industry that borrowers should have at least two years of employment and income history. And yes, lenders frequently make exceptions to this requirement.
In fact, it’s not really a “rule” or “requirement” at all. It’s more of an industry norm — something that most lenders adhere to most of the time. It also varies from one lender to the next. So don’t be discouraged by anything you read online. There are no hard-and-fast rules as to how many years of income you nee.
How Many Years of Income Do You Need for a Mortgage?
As a rule of thumb, mortgage lenders will typically verify your employment and income for the last two years. An ideal scenario is when the borrower has at least two years of steady / consecutive income. But there are also certain scenarios where an exception can be made.
For instance, if the borrower only has a small gap in employment, but has been steadily employed for years aside from that one gap, the loan could still clear underwriting. This is the exact situation you are in.
Another example is where there are compensating factors to make up for the “red flag” of interrupted employment. For example, a borrower with excellent credit and a long history of making mortgage payments on time might be given a “pass” on this general rule for employment and income.
It All Comes Down to Risk
So it really depends on the borrower and the amount of real or perceived risk. If the borrower appears to be a low risk to the lender, despite the employment gap, then it might not be an issue at all. On the other hand, if the borrower appears to “shaky” in other areas as well (low credit score, excessive debt, history of late or missed payments, etc.), the income gap might become the straw that broke the camel’s back.
It is the mortgage underwriter’s job to determine your likelihood for continued employment. This is a key buzzword among lenders. If the underwriter looks at your ten-year steady work history, compared to the two-week income gap, there’s a good chance he or she won’t have a problem with it. The overall pattern is one of continuous employment.
It also depends on whether or not the lender imposes “overlays” on the automated underwriting system they use. If they manually underwrite your loan, they will likely be more strict with their requirements. Automated underwriting systems often allow for the compensating factors mentioned above.
As you can see, there are many variables. If you feel that you are a strong candidate for a loan, go ahead and apply for one. Better yet, talk to a lender to find out if their income requirements will be an issue. Talk to several lenders, while you’re at it.
Recap: How many years of income do you need to get a mortgage loan? It varies. Lenders typically review IRS tax documents for the last couple of years. But that doesn’t necessarily mean you need continuous, unbroken earnings for that time frame. They are just trying to get a general idea of how much you earn, and how employable you are.
Brandon Cornett is a veteran real estate market analyst, reporter, and creator of the Home Buying Institute. He has been covering the U.S. real estate market for more than 15 years. About the author