Chances are, if you’re applying for a mortgage, you feel confident about your current employment. Alternatively, you’re confident of your ability to find a similar position if you needed to. However, your actual employment status means more to the lender than you might think. To a lender, your employment status is a strong indicator of your continued employment.
So, regardless how you feel about your position, it’s what can be proven on paper that matters. Let’s walk through some of the common ways employment status can be looked at.
Permanent employment
This is the gold star, if your employer has made you a permanent employee. This means that your position is as secure as any position can be. When a lender sees permanent status, it gives them the confidence that you’re valuable to the company. In other words, this means that your income can be relied on.
Probationary period
If you’ve only been employed with a company for a short period of time, you’re going to have to prove that you’ve passed any probationary period. Although most probationary periods are typically three to six months, they can be longer. The lender will want to make sure that you’re not under a probationary period. This is because an employer can terminate your employment without any cause during probation. There isn’t a lot of confidence for the lender if you haven’t made it through your initial evaluation.
Now, it’s not really the length of time with the employer that is being scrutinized here, it’s the status of your probation. So if you’ve only been with a company for one month, but you’ve been working with them as a contractor for a few years, and they’re willing to waive the probationary period based on a previous relationship, that should give the lender the confidence they need. You’ll just need to get that documented.
Parental leave
If you’re currently on, planning to be on, or just about to be done a parental leave, this can impact your application. If you have an employment letter that outlines your guaranteed return to work position (and date), you can use your return to work income to qualify on your mortgage application. It’s not the parental leave that the lender has issues with, it’s the ability you have to return to the position you left.
Term contracts
This is hands down the most ambiguous and misunderstood employment status. It’s usually well qualified and educated individuals who are working excellent jobs. The issue is that you have no documented proof of future employment. A term contract specifies that you will be paid to do a certain job from a start date to an end date. This is not a lot for a lender to go on when evaluating your long-term ability to repay your mortgage. Even though most term contracts get renewed or extended, your employer is not making any guarantees.
So in order to qualify income on a term contract, there are several different ways lenders look at it. The best would be to establish the income on at least a 2 year period. This is where the two year NOA or T4s come into play. The lender would simply take a two year average and use that. However, sometimes lenders also like to see that the contract has been renewed at least once before considering it as income towards your mortgage application.
If you’ve recently changed jobs, or are thinking about making a career change, let’s talk! If you have any questions at all, please don’t hesitate to contact me anytime. We can work through the details together and make sure you have a plan in place.