Mortgage lenders usually verify your employment by contacting your employer directly and by reviewing recent income documentation. The borrower must sign a form authorizing an employer to release employment and income information to a prospective lender. At that point, the lender typically calls the employer to obtain the necessary information.
Employers are usually happy to help, but there are steps borrowers can take if they refuse to verify employment.
Key Takeaways
- Mortgage lenders verify employment by contacting employers directly and requesting income information and related documentation.
- Most lenders only require verbal confirmation, but some will seek email or fax verification.
- Lenders can verify self-employment income by obtaining tax return transcripts from the IRS.
- There are several steps that borrowers can take if employers refuse to verify employment.
The Verification Process
In general, lenders verbally verify the information borrowers provide on the Uniform Residential Loan Application. However, they may opt to confirm the data via fax, email, or a combination of all three methods.
Mortgage lenders use this information to calculate several metrics to determine the likelihood that a borrower will repay a loan. A change in employment status can have a significant impact on the borrower's application.
Additional Information
When verifying employment, a lender will frequently ask other questions as well. The lender may inquire about the likelihood of continued employment.
Lenders are also interested in verifying position, salary, and work history. While lenders usually only verify the borrower's current employment situation, they may want to confirm previous employment details. This practice is common for borrowers who have been with their current company for less than two years.
Verification for Self-Employed Individuals
Many people who take out mortgages are self-employed. In this situation, lenders often require an Internal Revenue Service (IRS) Form 4506-T. This form is a request for "Transcript of Tax Return" and allows the lender to receive a copy of the borrower's tax returns directly from the IRS. In a self-employed situation, the lender may also ask for attestation by a certified public accountant (CPA) to confirm income.
Responding to a Refusal to Verify Employment
It is frustrating when an employer will not verify employment, but it can be easy to fix this situation in some cases. The first thing to do is tell your employer's human resources (HR) department that you need verification.
Some companies will not give out employment-related information without your permission. This policy is designed to stop sensitive information, such as your salary, from falling into the hands of criminals.
Don't give up or get angry if an employer will not verify your employment. There are usually ways to deal with this problem or work around it.
There can also be state laws or company rules against sharing particular employment-related information. Talk to your employer to determine if some general rule prevents them from sharing. If so, ask them to explain that to your prospective mortgage lender. Some lenders might be willing to process an application if they understand that another state's laws prevent them from verifying certain information.
You may also be able to find a different mortgage lender. The best mortgage lenders might be more familiar with your state's laws or willing to work with your employer's policies.
Finally, there are some cases where an employer will not verify employment for other reasons. At this point, it might be time to consider getting a new job. Why won't the employer verify your employment? Could they be doing something illegal? Does your employer have something against you? In the long run, you will likely be better off getting out of such a bad situation as soon as possible.
At What Point in the Mortgage Process Does a Lender Ask for Employment Verification?
When you apply for a mortgage, you'll typically give the lender some financial information, including your employer and income. The lender will verify this information during the underwriting process in order to approve you for a mortgage. That process happens days to weeks before closing. However, since mortgages can take a month or two to settle, the lender may perform a second verification of employment closer to the closing date, to make sure your circ*mstances haven't changed in that time.
What Happens if a Lender Cannot Verify Your Employment?
It is possible for a loan to be denied during the underwriting process, so you'll want to do everything you can to make sure that doesn't happen. If the lender can't verify your employment through the human resources department, be sure to call the department and explain your situation. You can also ask the lender whether supporting documentation, such as recent paystubs, tax returns, and W-2s, will be sufficient.
What Happens if I Lose My Job or Get a New Job When Trying To Get a Mortgage?
Tell your lender right away if you lose your job during the mortgage approval process. You have an obligation to make sure your mortgage application is true and complete, and a change in employment will be of interest to your lender. Unfortunately, losing your job may affect whether your loan moves forward, but by informing your lender, you may be able to work out an alternative plan.
The Bottom Line
Mortgage companies verify employment during the application process by contacting employers and by reviewing relevant documents, such as pay stubs and tax returns.
You can smooth the employment verification process by speaking with your HR department ahead of time to let them know to expect a call from your lender. If you're self-employed, you can have your income attested by a certified public accountant and provide IRS Form 4506-T to confirm your employment.
