Lenders always verify employment before you close on a loan. It’s not enough to supply your paystubs or even your tax returns. Lenders need to hear from a third party that you are employed. This helps the lender determine that your income is as accurate as you reported.
Defining the Verification of Employment
The Verification of Employment is a way for the lender to ensure that you are employed as you stated on your application. Each lender has a different method of verifying it, but the bottom line is they make sure everything is accurate.
Lenders can confirm where you work and what you make either through a written request or verbally. They usually do this early on in the loan process, but some may repeat it at the end. Some even do it on the day of your closing. This is to make sure that you are still employed and that nothing changed during the time your loan was underwritten.
The Reason Lenders Verify Employment
It might seem crazy for a lender to verify something you already provided them, but it’s a way to make sure everything is on the up and up. The lender usually conducts the verification of employment early in the loan process. This helps them prevent wasting too much time on a loan if the borrower is not still employed where they said they were.
Even if you changed jobs, you will need to prove that you can afford the loan. It’s not enough to tell the lender that you changed jobs and make the same income. The lender will need to double check with the new employer that you do in fact work there. They will also need to see proof of your income from this new job. This may mean waiting a few months before you can move forward with your loan.
How Lenders Verify Employment
Each lender can verify your job how they see fit. Some like written verification while others are okay with just a verbal verification.
Typically, early in the underwriting process, lenders verify employment with a written request. This gives them access not only to verification that you are employed, but they can also confirm your actual income. This gives the lender another ‘checks and balances’ when it comes to verifying your income. They can use your paystubs, tax returns, and the information from your employer to ensure that you can afford the loan.
Verifying Employment Before Closing
Whether or not lenders re-check your employment on the day of the closing is per lender discretion. Some lenders like to re-verify your it just to make sure nothing changed. Again, if you changed jobs, this changes the entire dynamic of the loan. Even if your income is exactly the same, the fact that you are at a new employer means the lender must verify the legitimacy of the job as well its likelihood to continue.
Lenders verifying employment to protect everyone involved in the loan, including you. It’s their job to make sure you can afford the loan beyond a reasonable doubt. They must make sure your income allows you to afford the loan. They do this by checking your debt ratio. It must fall within the guidelines of the specific loan program. If you have any worries about a lender verifying your employment, discuss it with them. The more honest you are with a lender, the more likely it is that you will walk away with the loan you need and can afford.