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Recent Job Change, Relocation, and Employment Gaps

Recent job changes, relocations, and employment gaps require careful documentation during the mortgage underwriting process. Lenders require a two-year employment history but do not require two years at the same employer. Same-field job changes are generally evaluated favorably, while career changes and extended gaps require additional explanation and documentation. Offer letters may be used for qualification under specific conditions.

Key Takeaways

  • A two-year employment history is required, but changing employers within the same field does not disqualify a borrower.
  • Career changes to a new field, especially those involving variable compensation, create additional underwriting scrutiny and may exclude variable income components.
  • Employment gaps exceeding 30 days require a written letter of explanation documenting the reason and dates.
  • Offer letters may be used for qualification if they state position, start date, and compensation on company letterhead.
  • Probationary periods do not automatically disqualify but may require additional documentation regarding employment stability.
  • Relocation bonuses and moving expense reimbursements are one-time income and excluded from qualifying calculations.
  • Variable compensation (overtime, bonuses, commissions) with a new employer typically requires 12-24 months of history before inclusion.
  • Borrowers transferring within the same company face the least scrutiny, as income continuity is clearly documented through the transfer letter.

How It Works

Same-Field Job Changes

A borrower who changes employers but remains in the same field or occupation is generally evaluated without penalty. For example, a nurse moving from one hospital to another, or a software developer changing companies, represents employment continuity in the same profession. The underwriter uses the new employer’s income for qualification, supported by an offer letter, pay stubs from the new employer, and verification of employment.

If the new position involves a change in compensation structure — for example, moving from a salaried position to one with significant commission or bonus components — the underwriter may require documentation of the new compensation terms and may exclude variable components until a track record is established at the new employer.

Career Changes

A borrower who changes fields entirely — for example, leaving teaching to start a real estate career — presents a different underwriting scenario. The underwriter must evaluate whether the new career provides stable income. If the new career involves commission, self-employment, or variable compensation, the lack of a two-year track record in the new field may result in the variable income being excluded from qualification or the application being declined .

Employment Gaps

Gaps in employment exceeding 30 days within the most recent two years require explanation. The borrower must provide a written letter of explanation (LOE) describing the reason for the gap (layoff, medical leave, family reasons, relocation) and the dates of unemployment. If the gap was followed by a return to the same employer or field, the impact is generally minimal. Extended gaps (6+ months) or multiple gaps create additional scrutiny and may require compensating factors such as significant reserves or a lower DTI ratio.

Fannie Mae’s automated underwriting system (DU) may or may not flag employment gaps depending on the overall file strength. If flagged, the underwriter must document the gap and determine that the current employment is stable and likely to continue.

Offer Letters and Probationary Periods

Borrowers who have accepted a new position but have not yet started may use an offer letter for qualification in some cases. The offer letter must be on company letterhead, state the position title, start date, and compensation terms (salary, bonus structure, hours). Fannie Mae allows the use of offer letters for qualification provided the borrower will begin employment before or shortly after closing and the income is not contingent on future performance milestones .

A probationary or trial period at a new employer does not automatically disqualify a borrower, but the underwriter evaluates whether the probationary status creates risk. If termination during probation is common in the industry or the employer’s policies indicate a high attrition rate, additional documentation may be required.

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Key Factors

Factors relevant to Recent Job Change, Relocation, and Employment Gaps
Factor Description Typical Range
Type of Job Change
Length of Employment Gap
Compensation Structure Change
Timing Relative to Application

Examples

Scenario: Nurse changing hospitals with a salary increase
Outcome: The underwriter qualifies the borrower at the new salary of $82,000. The same-field move with a salary increase is viewed favorably. No penalty for changing employers. The offer letter and initial pay stub confirm the terms.

Scenario: Engineer with a 4-month employment gap after a layoff
Outcome: The underwriter accepts the letter of explanation for the 4-month gap (company downsizing, not performance-related). The borrower's return to the same field and stable income at the new position supports qualification at $95,000. Four months of pay stubs at the new employer demonstrate income stability.

Scenario: Teacher transitioning to real estate sales
Outcome: The commission income cannot be used for qualification because the borrower has less than two years of history in the new field. If the borrower has other income sources or a co-borrower, those may support the application. Otherwise, the borrower may need to wait until two years of commission income are documented on tax returns.

Common Mistakes to Avoid

  • Changing jobs or careers in the middle of a mortgage application without notifying the lender
  • Assuming that a higher-paying new job automatically improves qualification
  • Not providing a letter of explanation for employment gaps
  • Including relocation bonuses or signing bonuses as qualifying income
  • Starting a new commission-based job expecting to use projected income

Documents You May Need

  • Two years of employment history documentation (W-2s, tax returns, offer letters)
  • Most recent 30 days of pay stubs from current employer
  • Offer letter on company letterhead (if new position not yet started or recently started)
  • Transfer letter from employer (for company relocations)
  • Written letter of explanation for any employment gaps exceeding 30 days
  • Verification of employment (VOE) from current and prior employers
  • Employment contract showing compensation terms, start date, and position
  • Documentation of variable compensation history (if applicable) from prior employer

Frequently Asked Questions

Can I get a mortgage if I just started a new job?
Yes, in most cases. If you remain in the same field or profession, lenders use your new salary for qualification supported by an offer letter and initial pay stubs. Career changes may require additional documentation and may limit the types of income that can be included.
How long do I need to be at a new job before applying?
There is no minimum time requirement at a specific employer for most loan programs. The key factor is demonstrating a stable two-year employment history, which can include multiple employers. Having at least one or two pay stubs from the new employer is generally helpful.
Will an employment gap disqualify me?
Not necessarily. Gaps under 30 days are generally not an issue. Gaps over 30 days require a written explanation. Extended gaps (6+ months) or multiple gaps create more scrutiny but can be overcome with a strong overall file, stable current employment, and compensating factors.
Can I use an offer letter instead of pay stubs?
Yes, Fannie Mae allows offer letters for qualification if the letter is on company letterhead, states the position, start date, and compensation terms. The borrower should begin employment before or shortly after closing.
Does being on probation at work affect my mortgage application?
Probationary status does not automatically disqualify you, but the underwriter evaluates whether it creates risk. If the employer's verification indicates the borrower is in a probationary period, the underwriter may require additional documentation confirming employment stability.
I am relocating for a job transfer within my company. Will this cause issues?
Company transfers are among the simplest employment changes to document. A transfer letter from the employer confirming the new location, position, and compensation continuity is typically sufficient. This is viewed favorably by underwriters.
Can I include overtime from my new job in qualifying income?
Overtime, bonuses, and other variable compensation typically require 12-24 months of history with the current employer before inclusion. Base salary from the new employer can be used immediately, but variable components generally cannot until a sufficient track record is established.
What if I went from full-time to part-time or vice versa?
Changing from full-time to part-time reduces qualifying income to the part-time level. Changing from part-time to full-time increases qualifying income, but the underwriter evaluates whether the full-time status is likely to continue. Recent increases in hours are evaluated similarly to new income sources.
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