Do Banks Verify Employment Before Closing on a Mortgage?

Getting a mortgage can be an exciting yet stressful process. You’ve found your dream home and are eager to close and move in. But before you get the keys, your lender needs to verify your income and employment. This crucial step ensures you can actually afford the monthly payments.

So how and when do lenders check to see if you have a job? What happens if you change jobs in the middle of the application process? Let’s look at the whole mortgage employment verification process.

Why Lenders Verify Employment

Mortgage lenders verify employment for a few key reasons

• To prove your income—Your job gives you the steady monthly income you need to pay back the loan—Lenders need to see proof of your wages and salary.

• To make sure you have a stable job—lenders want to see that you’ve had steady work and aren’t switching jobs all the time. This demonstrates you can make payments long-term.

• To detect fraud – Employment verification prevents fraudulent loan applications. It ensures you aren’t inflating your earnings.

• To meet underwriting requirements – The lender’s underwriters mandate income and employment verification to approve loans. It’s part of their due diligence.

Bottom line? Confirming your job is critical to getting mortgage approval. Now let’s look at how banks actually perform employment verification.

How Mortgage Lenders Verify Your Job

According to the Consumer Financial Protection Bureau (CFPB), lenders use a few common methods to verify employment:

Verbal Verification of Employment

This is the most popular approach. The lender contacts your employer’s HR department by phone. They confirm your job title, hire date, income, hours, and other details verbally.

Written Verification of Employment

Some lenders require written proof from your employer. They may ask HR to complete a verification of employment form detailing your pay, position, employment dates and more.

Pay Stubs

Lenders often review your most recent pay stubs during underwriting. The stub proves your income amount and frequency of pay. Provide as many consecutive stubs as possible.

W-2s

Your W-2s from the last two years also evidence your earnings history over time. Make sure to include all your W-2s if you held multiple jobs.

Tax Returns

For self-employed borrowers, lenders require two years of business and personal tax returns. These documents verify your income from freelance work or a small business.

When Does Employment Verification Happen?

Mortgage lenders actually confirm your employment twice during the loan process:

1. Initial Underwriting Stage

The first verification happens early on when the lender underwrites your application. An underwriter reviews your income, assets, credit and other factors to decide on loan approval. At this point, they verify your job to confirm your income level meets debt-to-income requirements.

2. Right Before Closing

Lenders re-verify employment shortly before the closing date. This ensures nothing changed since initial approval. You won’t get loan funding or home keys until they complete this final check.

So expect your lender to call HR near the start of underwriting, then again 1-2 days before closing. Now what happens if your job status changes during the process?

What if You Switch Jobs or Get Fired?

You’re not allowed to switch employers or get laid off during the mortgage application. Any job changes must be reported immediately to your lender and underwriter. They will likely halt the application process and reverify your income.

Here are possible outcomes if your job status changes:

• New job with same/higher income – You may still qualify if your earnings are stable. But expect delays as HR confirms your new employment.

• New job with lower income – The lender will likely deem you ineligible based on lower debt-to-income ratios. You may have to reapply later when income increases.

• Got laid off – Unfortunately lenders will not approve a mortgage without steady employment. You’ll need to find a new job before reapplying.

The bottom line? Don’t switch employers or quit your job until after closing. Inform your lender immediately of any involuntary job loss. Delays or denial are likely if your income changes during underwriting.

Tips for a Smooth Verification Process

You can make the employment verification process quick and seamless by following these tips:

• Inform your HR department – Let them know to expect the lender’s call.

• Provide accurate employer info – Verify the name, address, phone number are all correct.

• Submit all requested documents – Pay stubs, tax returns, W-2s etc.

• Avoid job changes – Stick with your current employer until after closing.

• Report income changes – Immediately notify your lender of any layoffs or new jobs.

• Be patient – It takes time for lenders to verify your personal financial information.

Following these best practices will streamline employment confirmation and help you get keys to your new home faster.

The Takeaway

Mortgage lenders are required to check your employment status and income before approving a home loan. They will contact your employer twice – during underwriting and right before closing – to validate your job stability and wages. Any changes in your employment must be reported to the lender immediately and will likely delay closing. Stick with your current job, submit all requested docs, and keep your lender updated for the smoothest verification process.