Why Do Mortgage Lenders Ask for Employment Verification?

by David Iseman 11/03/2019

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

David Iseman

David Iseman's focus is helping people who want to invest in or sell real estate on beautiful Cape Cod, Massachusetts, USA, a saltwater peninsula 75 miles south of Boston, MA. This world-famous vacation destination is known for its fresh salt air, beautiful ocean beaches, quaint New England villages, picturesque country lanes, golf courses, boating, fishing, restaurants, and proximity to the islands of Martha's Vineyard and Nantucket.

David is a native New Yorker, born and raised in Manhattan, has been on Cape Cod since the mid 80s, and served on the committees for the Falmouth Fourth of July Fireworks, the annual Falmouth Holiday Parade, and volunteers at The Woods Hole Theater Company.

On the radio, David has been heard as the Afternoon On-Air Personality at Boston's Kiss 108,and Magic 106.7; Creative Director at WXTK & WCOD, Hyannis, MA; Program Manager/Afternoon host at Cape & Islands Oldies 96, and Cape Cod's Lite (now Cool) 102.

As an actor, he can been seen on-screen in True Lies starring Arnold Schwarzenegger, and as member of the Falmouth Theater Guild, he appeared in Irving Berlin's White Christmas. At the Showcase Playhouse in Sunapee, NH: Oklahoma!, Brigadoon, Born Yesterday, Mame, Finian's Rainbow; Newton Theater Company: Applause.

David is a full-time Realtor offering Competent and Compassionate Service since 1998, specializing in premium properties, waterfront homes, and land on Cape Cod, MA, and internationally through Sotheby's International Realty's extensive network of like-minded real estate professionals. David holds a Massachusetts Real Estate Broker's License and, to serve you more effectively, has earned these designations: Accredited Buyer Representative, Seniors Real Estate Representative (SRES), and the e-PRO certification from the National Association of Realtors which teaches how to effectively use technology to help our clients.

David looks forward to being of service and helping you avail yourself of the extensive resources at Sotheby’s International Realty.