Do Lenders Verify Employment the Day of Closing?
Get clarity on how mortgage lenders verify your employment status and income at crucial stages, including near closing, for loan approval.
Securing a mortgage involves a thorough assessment of a borrower’s financial standing, and employment verification is a fundamental component. Lenders confirm a borrower’s stable income to determine their capacity to repay a substantial loan. This verification establishes financial reliability for mortgage approval.
Why Lenders Verify Employment
Lenders verify employment to assess a borrower’s financial stability and mitigate loan repayment risks. Consistent employment and a reliable income stream indicate a borrower can meet monthly mortgage obligations.
Confirming employment history and current status provides a clear picture of financial health. This helps lenders evaluate the likelihood of sustained income throughout the loan term, reducing default risk.
When Employment Verification Occurs
Employment verification is a multi-stage process that begins early in the mortgage application. Initially, when a borrower submits their loan application, lenders collect employment details and request supporting documentation. This initial check establishes eligibility and forms the basis for underwriting.
During the underwriting phase, a comprehensive review of the borrower’s financial information, including employment, takes place. Underwriters examine employment documents and may conduct direct verifications with employers. This stage confirms the borrower’s income, job title, and likelihood of continued employment.
A final employment verification often occurs shortly before or on the day of closing. This is typically a verbal verification of employment (VOE) conducted within approximately 10 days of the scheduled closing date. The purpose of this last check is to ensure no material changes to the borrower’s employment status have occurred since prior verifications, preventing loan approval under changed financial circumstances.
How Lenders Verify Employment
Lenders use several methods to verify a borrower’s employment and income. One common approach involves directly contacting the employer, often through a verbal verification of employment (VOE) call to human resources. This confirms job title, start date, current income, and likelihood of continued employment.
Borrowers typically provide documents to substantiate employment claims. These commonly include recent pay stubs, W-2 forms for the past two years, and sometimes tax returns, especially for self-employed individuals. For self-employed borrowers, lenders may request IRS Form 4506-T to obtain tax return transcripts directly from the IRS.
Some lenders also use automated verification services that access payroll data directly from employers, which can expedite the process. These services provide current and historical employment and income data. The chosen method depends on the lender’s internal procedures and the borrower’s employment situation.
Communicating Employment Changes
Transparent communication with a lender regarding employment changes during the mortgage process is important. Significant changes to report include job loss, a change in employer, a notable decrease in income, or a shift in pay structure, such as moving from salaried to commission-based. Failing to disclose such changes can lead to complications, including delays or withdrawal of loan approval.
If an employment change occurs, a borrower should immediately inform their loan officer. The lender will likely require updated documentation, such as a new offer letter, recent pay stubs from the new employer, and a verification of employment for the new position. This may necessitate a re-underwriting of the loan, which can extend the timeline to closing.
While a change to a higher-paying job in the same field might not negatively impact the application, a move to a different industry or a position with less stable income could raise concerns. Proactively providing all relevant information allows the lender to re-evaluate loan terms and helps maintain eligibility. Avoid significant employment changes between the initial application and loan closing.