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Why Do Mortgage Lenders Ask for Employment Verification?

by Irene Roger 07/09/2018

Applying for a mortgage is a big step towards homeownership and financial independence. If it’s your first time buying a home, you might be curious (and a little intimidated) about all of the things that go into your mortgage application.

When reviewing your application, mortgage lenders are trying to determine how risky it is to lend you money. If all goes well, and they determine that lending to you would be a worthy investment, you’ll get approved for a mortgage.

There are three main things that lenders will use when weighing your application (however, there are other factors as well).

First, they’ll run a detailed credit report. This will tell them how much other debt you have, what kind of accounts you have open, how long you’ve had this debt, and how responsible you are when it comes to making your monthly payments in time.

Second, they’ll consider how much money you’ll be using toward a down payment. A larger down payment alleviates some of the risk associated with lending to you. Therefore, people with little or no down payment saved can have a difficult time getting approved for a mortgage. And, if they do get approved, they’ll have to pay monthly private mortgage insurance on top of their regular mortgage payments.

Finally, the third main consideration will be your current income. Lenders will look at your previous two years of income (including tax returns) and will seek out current income verification from your employer.

The latter is a key part of getting approved, as lenders will want to ensure that you are in a stable financial situation and will be able to immediately start making mortgage payments.

Today’s post will center around income verification and how mortgage lenders will use your income to determine your borrowing eligibility.

How Do I Verify My Employment?

If you’re employed with a company, most lenders will reach out to your employer directly to verify your employment. You’ll be asked to sign a form that authorizes your employer to share these details with the lender, and then your part of the job is done and you can move on to the next step of your application.

Things get trickier when you’re a freelancer, are self-employed, or work with several clients as a contract worker. In these situations, lenders will typically require you to file a Form 4506-T with the IRS. This form allows your lender to obtain your tax returns directly from the IRS.

Can I submit additional information to verify my income?

There are some situations where providing additional income information can bolster your case in terms of getting approved for a mortgage.

If you own a business, your lender of choice may ask for a profit and loss statement. If you’re an independent contractor or freelancer, your clients who have paid you at least $600 or services or $10 in royalties will be required to send you a Form 1099-MISC.

If you have mixed income, such as a full-time job with freelance work on the side, showing these 1099-MISC forms can help increase your income on paper so that lenders will approve you or a higher mortgage amount or lower interest rate.

About the Author

Author
Irene Roger

Hi, I'm Irene Roger and I'd love to assist you. Whether you're in the research phase at the beginning of your real estate search or you know exactly what you're looking for, you'll benefit from having a real estate professional by your side. 

As a Spanish-speaking realtor with over 30 years of experience in the Atlanta area,  I am the ideal person to market your home and assist you with finding the home of your dreams. I have lived all over the world and work with costumers from all backgrounds.  

I specialize in relocations, first time buyers, tenants, and investors.

My experience, honesty, and integrity are great assets to you. 

My past clients feel the same way about me too. Here's what they had to say.

Michelle Doherty - Irene is very knowledgeable due to her many years living in the area and doing business. She worked hard for me and my family and I know she will do so for others. Another thing I found out about her is that she speaks Spanish fluently! Irene responds quickly and likes to negotiate. 

  

dinasnyder4- Over the years we have bought 2 homes and sold one with Irene. She is such a wealth of information and she is a top negotiator. I was always glad she was on our side. I would never go through the process without her! 

Olga Cadena - I highly recommend Irene, Excellent agent. Very professional and knows the area very well!!! She is available, and very flexible. Thank you Irene for making my selling the process very easy!