How do we look at Gaps of Employment?

Updated: 12/11/2018
Article #: 156


 

 Conv:

Does Fannie Mae have a policy on employment gaps?

No. Fannie Mae does not currently have a policy on borrowers who have experienced gaps in their employment history. Fannie Mae’s underwriting guidelines emphasize the continuity of a borrower’s stable income. The stable and reliable flow of income is a key consideration in mortgage loan underwriting. Individuals who change jobs frequently, but who are nevertheless able to earn consistent and predictable income, are also considered to have a reliable flow of income for qualifying purposes. 

To demonstrate the likelihood that a consistent level of income will continue to be received for borrowers with less predictable sources of income, the lender must obtain information about prior earnings. Examples of less predictable income sources include commissions, bonuses, substantial amounts of overtime pay, or employment that is subject to time limits, such as contract employees or tradesmen. 



FHA:

How are gaps in employment considered when analyzing income stability?



For borrowers with gaps in employment of six months or more (an extended absence), the Mortgagee may consider the borrower’s current income as effective income if it can verify and document:  • the borrower has been employed in the current job for at least six months at the time of case number assignment; and  • a two year work history prior to the absence from employment using standard or alternative employment verification.

 

 

VA:
Verify a minimum of 2 years employment.  If the applicant has been employed by the present employer less than 2 years:    verify prior employment plus present employment covering a total of 2 years,  provide an explanation of why 2 years employment could not be verified,  compare any different types of employment verifications obtained (such as, Verification of Employment (VOE), pay stubs, and tax returns for consistency), and   clarify any substantial differences in the data that would have a bearing on the qualification of the applicant. 

USDA:

 

The following guidance also assists lenders to consider repayment income sources:    
The income source must be documented.
There must be evidence of receipt of earnings.  
Lenders are responsible to analyze any gaps in employment in order to make a final determination of stable and dependable income.  An employment gap does not automatically render an applicant ineligible.     
Caution should be utilized for any applicant that has documented declining wages or earnings. 
Lenders must ensure repayment income is not inflated/overstated.






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