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.
FAQs
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.
How does a mortgage lender verify employment? ›
Mortgage lenders usually verify income and employment by contacting a borrower's employer directly and reviewing recent employment and income documentation. These documents can include an employment verification letter, recent pay stubs, W-2s, or anything else to prove an employment history and confirm income.
Do mortgage lenders verify paystubs? ›
Lenders often require mortgage borrowers or other loan applicants to supply two recent paystubs to verify their income. As rental and mortgage fraud continues to rise, submitting fake paystubs is one of the ways that would-be homebuyers are committing fraud.
How do loan underwriters verify income? ›
Income, asset and employment verification
This is when the lender's underwriter checks your credit and financial situation to confirm you're capable of repaying the loan and also verifies your employment. You'll need to submit documents such as W-2s, pay stubs and bank statements for verification.
Do mortgage lenders verify remote employment? ›
Do You Need a Remote Work Letter for Your Mortgage? In most cases, yes, you will need a remote work letter when applying for a mortgage loan. The purpose of this letter is to provide verification of your employment and income during the underwriting process.
What questions do lenders ask when verifying employment? ›
Lenders will often ask about the future of your employment and how likely you are to lose your job. This is especially pertinent if you recently moved to a new job or industry. If you've been in your job for less than two years, you may have to give details about previous roles.
Do banks really call your employer verify employment? ›
This process varies from lender to lender. Some lenders will verify your employment with your employer either over the phone or through a written request. Then, about 10 days before your scheduled closing, re-verify your employment. This is done to make sure nothing has changed with your employment status.
How are fake pay stubs detected? ›
Check the Decimal Point Alignment on the Pay Stub
This may seem oddly specific, but decimals that are out of alignment are an easy watch to detect a fake document. Accounting software automatically aligns all the digits and decimal points, so if anything is out of place, the pay stub is likely fake.
Can banks detect fake Paystubs? ›
There are a number of ways in which the false information you provide can be discovered, both before and after your loan is obtained. If they do careful diligence, or if your loan application is chosen for random audit, then it will be very easy for them to find out that your pay stubs are fake.
Can banks detect fake pay stubs? ›
Some lenders require that applicants supply two recent pay stubs (used for cross-verification purposes) to verify their income. Some lenders verify these documents manually, calling previous employers to verify the information and relying on the naked eye to spot anomalies and inconsistencies.
Banks can call your employer to verify employment for personal loans. But most banks will simply verify your income through a tax document or bank statement when evaluating your application for a personal loan.
Do underwriters look at your spending? ›
Bank statements play a crucial role, revealing your financial habits, income, and spending, impacting mortgage approval. Underwriters check the last two months (or up to 12-24 for self-employed) for savings for down payment, affordability of monthly payments, and cash reserves.
Do underwriters watch your bank account? ›
Loan underwriters will review your bank statements to help determine whether you will be eligible for a mortgage loan. They'll look at your monthly income, monthly payments, expense history, cash reserves and reasonable withdrawals.
What happens if lender Cannot verify employment? ›
Employment Documentation Provided by the Borrower's Employer
If a lender cannot sufficiently document a borrower's income, they will contact the borrower's employer directly using a Request for Verification of Employment (VOE) or a third-party service.
Do lenders verify employment after closing? ›
A lender may want to contact the previous employer if you recently changed jobs. If you are self-employed, additional documentation about your business and finances may be requested to show that you have a strong financial standing.
How do mortgage companies verify income self employed? ›
Income Documentation
Your lender will ask for the following: Personal tax returns (including W-2s if you're paid through your corporation, partnership or sole proprietorship) Business tax returns (which may include a Schedule C, Form 1120-S or K-1, depending on your business structure)
Do mortgage lenders verify employment after closing? ›
A lender may want to contact the previous employer if you recently changed jobs. If you are self-employed, additional documentation about your business and finances may be requested to show that you have a strong financial standing.
What happens if I lose my job before closing on a mortgage? ›
What Happens if You Lose Your Job Before Closing on a Mortgage? Losing your job prior to closing could delay your closing date or, in some cases, lead to a lender denying your application for a mortgage.
How do lenders verify documents? ›
A proof of deposit is used by lenders to verify the financial information of a borrower. Mortgage lenders use a POD to verify there's sufficient funds to pay the down payment and closing costs for a property.
How do banks verify income? ›
Very simply, a tax return or paystub will do the trick. Since most paychecks are deposited electronically, you may have to log into your company's payroll system and print a recent paystub. Be aware that the lender may call your employer to confirm that you work where you say you work.
