How Mortgage Companies Document Employment and Income

Mortgage Company Income and Employment Verification
In a nutshell, mortgage companies need to verify a two-year history of employment to use the income on the mortgage application. Employment stability must be established for the two-year period, including verification of all jobs for applicants who have had more than one employer.

Employment Verification Methods
There are two acceptable methods for mortgage companies to verify employment and income.

1. Verification of Employment (VOE) Form. A VOE is sent by the mortgage company to the applicant’s current and previous employers. The employer fills in the blanks, noting employment term, income breakdown and any future projections of pay or employment change.
2. Alternative Documentation (Alt docs). The applicant is asked to provide written documentation regarding his/her employment and income. This generally includes paystubs covering the previous 30 days and W2′s from the prior 2 years. For borrowers who will be using commission, bonuses or self-employment income to qualify, complete personal Federal Income Tax Returns for the prior 2 years will also be necessary. Additionally, if an applicant owns 25% or more of a business, the previous 2 years business tax returns and a year-to-date Profit and Loss statement will be required.

Prior to closing, a verbal verification of the applicant’s employment will often be required.

Monthly Income Calculation
Once a two year employment history is established, mortgage companies need to figure the income as a monthly figure. Gross income (income before taxes) is generally used, except for self-employed borrowers. The income is figured as follows:

Type of Income	Monthly Income Calculation
Annual Salary	Annual Salary / 12
Hourly	Hourly Rate X Number of Hours Worked
Full Time	2080 X Hourly Rate / 12
Semi-Monthly	Semi-Monthly Rate X 2
Bi-Weekly	Bi-Weekly Rate X 26 / 12
Commissions, Bonuses, Overtime	2 Years / 24 (Many restrictions apply)
Social Security, Child Support (Non-Taxable)	Monthly amount + 15% to 25%, depending on type
Self-Employed	2 Years NET Income / 24 (Many restrictions apply)

Analyzing Employment Stability
Mortgage companies use employment stability to help determine an applicant’s ability to repay the loan. Employment stability does not mean that the borrower has to have been at the same employer for the last two years. Here is a little of what mortgage companies are looking for:

• Demonstrated ability to maintain full employment over time.
• Applicant’s employment in a field with continued demand and advancement opportunities.
• Education or training that can lead to higher incomes and career advancement.
• Frequent job changes to maintain or increase income.
• Consistent earnings for seasonal workers.

What mortgage companies look out for:

• Employment gaps.
• Declining earnings.
• Unrelated types of employment.

There are many more income types that go beyond the scope of this article, including part-time employment, unemployment earnings (yes, it can be used in some cases!) and income property rentals.  Mortgage companies know that every borrower’s situation is different.

Always remember to make sure you’re dealing with a reputable loan officer!

Do you have any questions about income or employment? Please leave them in the comments!