Before you qualify for a home loan, mortgage lenders will want to verify how much money you make and ensure that your income is stable. But how the lender goes about verifying your employment can vary depending on the lender, the type of loan you’re getting, and your occupation.
What is employment verification?
Verification of employment, sometimes abbreviated as VOE, is essentially proof of your income through W-2s, pay stubs, or income tax returns. This information is typically turned in with your mortgage application. An underwriter or loan officer may also call, fax, or email your employer directly to verify your employment.
Why does a lender need to verify my income?
Mortgage lenders find it important to verify your gross income so they can calculate “front-end” and “back-end” debt ratios. The front-end ratio compares your mortgage payments with your gross income, while the back-end ratio considers all of your monthly loan payments in comparison to your gross income. By calculating these debt ratios, lenders can determine whether you’ll be able to pay off your mortgage without any foreseeable issues. Under most circumstances, they’ll look for front-end ratio percentages to be in the low 30s and back-end ratio percentages to be less than 45.
What are the potential pitfalls of the employment verification process?
As part of the employment verification process, lenders may also want to know your personal job outlook. They’ll probably ask your employer to confirm that you’re likely to maintain your position. One potential sticking point to keep in mind: Lenders sometimes have trouble getting in touch with employers to confirm the necessary details. For example, HR may be slow to respond. If you’re a contractor or self-employed, there may be no HR department to contact (in which case, you will have to rely on tax returns to prove a steady income).
To help the process along, try to communicate as openly as possible with both the lender and your employer to get the right documentation delivered. If your employer provides income information to a mortgage lender that’s different from what you submitted, the lender will default to using the information provided by your employer. It’s in your best interest to make sure there are no inaccuracies, as this can negatively impact your mortgage terms.
When will my lender do an employment verification?
Typically, lenders will want to verify your employment status long before you close on a home. It’s usually done as part of the loan underwriting process. But sometimes, additional VOE checks are made right before closing. If you’ve recently lost your job or even appear to be at risk of losing your job, a negative report could nix the deal entirely.
