Do Mortgage Lenders Check Employment Contract

When it comes to applying for a mortgage, many borrowers may wonder whether their employment contract will be subject to scrutiny by the lender. The short answer is yes, mortgage lenders typically do check employment contracts as part of the application process. In this article, we’ll explore why lenders check employment contracts, what they’re looking for, and how it can impact your mortgage application.

Why do mortgage lenders check employment contracts?

A borrower’s income and employment status are two critical factors that lenders consider when assessing their ability to repay a mortgage. As such, lenders want to gain a clear understanding of a borrower’s employment situation, including their contract terms, to get a more comprehensive picture of their financial stability.

What information are lenders looking for in an employment contract?

When lenders examine an employment contract, they typically look for the following information:

1. Length of employment: Lenders generally prefer to see that borrowers have a stable history of employment. Therefore, they will examine the length of time a borrower has been with their current employer to determine the likelihood of continued employment.

2. Income: Lenders need to ensure that a borrower’s income is sufficient to cover mortgage payments and other expenses. As such, they will review a borrower’s employment contract to verify the amount and stability of their income.

3. Employment type: Lenders prefer borrowers with full-time employment because it indicates a more stable income and a higher likelihood of being able to make mortgage payments consistently. However, the terms of the employment contract will also shed light on the type of work the borrower does and whether it’s reliable enough to provide a steady income.

4. Probationary period: If a borrower is new to their job and still within their probationary period, lenders may view this as a potential risk due to the uncertainty of their continued employment.

How can an employment contract impact a mortgage application?

A borrower’s employment contract can have a significant impact on their mortgage application. If a lender examines the terms of the contract and finds any red flags, such as a short-term or temporary contract, it may negatively impact the borrower’s ability to secure a mortgage.

Furthermore, if a borrower’s employment contract indicates a variable income, such as commission-based pay, or if they work part-time, lenders may be more cautious when approving the mortgage, as it may be viewed as riskier.

In contrast, if a borrower has a stable, long-term employment contract with a reliable source of consistent income, lenders may be more willing to approve the mortgage application.

In conclusion, mortgage lenders do check employment contracts as part of their assessment of a borrower’s financial stability. While borrowers cannot control the terms of their employment contract, they can ensure that they have a stable employment history and a reliable source of income to increase their chances of securing a mortgage.