Fannie Mae, FHA, and VA Guidelines for Acceptable Job Gaps

When applying for a mortgage, Fannie Mae, FHA, and VA have specific guidelines regarding employment gaps. Here are the key points to consider:

Fannie Mae Guidelines

1. Employment History: Fannie Mae generally looks for a two-year employment history. However, there may be allowances for gaps in employment or changes in employment.
2. Recent Employment: Borrowers should have a stable, continuous, and verifiable employment history. If there are gaps, they should be well-documented and explained.
3. Maximum Gap Allowed: Fannie Mae does not have a strict maximum limit for job gaps. Technically, a borrower can be out of a job for years and return to the workforce with a letter of explanation. However, shorter gaps are easier to justify and may require less documentation.
4. Documentation Requirements: Lenders may use the Request for Verification of Employment (Form 1005) to document income for a salaried or commissioned borrower. The date of the completed form must comply with Fannie Mae’s guidelines on the allowable age of credit documents and federal income tax returns.
5. Secondary Employment: For secondary employment, borrowers may have different employers, but they should not have any gap in employment greater than one month in the most recent 12-month period.

FHA Guidelines

1. Current Position: FHA guidelines don’t require you to be in your current position for any set period to be eligible for a mortgage, but you may need to provide a letter of explanation for any gaps longer than a month.
2. Extended Gaps: This program also allows for extended gaps (six months or longer) in your job history, so long as you’ve been back at work for at least the past six months and can prove that you had stable and similar employment for at least two years prior to your gap.
3. Multi-Year Gaps: Guidelines even note that multi-year employment gaps are acceptable in many cases as long as you meet these criteria.

VA Guidelines

1. Letter of Explanation: Lenders offering VA loans will need a letter of explanation for any gaps longer than 60 days (30 days in some cases) and want to see at least 12 months of steady employment since.
2. Exceptions for Shorter Employment Periods: Exceptions can be made for shorter periods of employment if your education or training has provided you with skills necessary to your field. This shows an enhanced likelihood that your income will continue despite a relatively short employment history.
3. Skilled Jobs: Some examples of skilled jobs mentioned in VA guidelines include:
   • Computer systems analyst
   • Lawyer
   • Medical technician
   • Nurse
   • Paralegal
4. Recently Separated from Service: You may also be eligible if you’ve recently separated from service, had a brief gap, and are now employed in a job that is similar to your profession in the military.

Valid Reasons for Employment Gaps

1. Maternity Leave or Documented Illness: Maternity leave or a documented illness is considered a valid reason for a gap between jobs. Lenders understand these situations and will take them into account.
2. Education: Any education that enhances your career prospects won’t be judged as a gap. However, you will need to document this with school transcripts.

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While Fannie Mae, FHA, and VA have specific guidelines for employment gaps, they are flexible and allow for various circumstances. Proper documentation and a clear explanation of any gaps can help strengthen your mortgage application.

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