Buying a new home is fascinating, but if you don’t know what to expect, the process of getting authorized for a mortgage can quickly become overwhelming.
Financial institutions use a variety of strategies and documents to verify income and employment to ensure that home buyers earn enough to pay for the cost of their mortgage. This is where mortgage employment verification comes in.
Understanding the proof of employment or verification requirements before making a mortgage application will assist you in your journey from pre-approval to closing on your new ideal home. But before that, what is proof of employment?
This article will explain what a proof of employment letter for a mortgage is, what to include, and some tips to get you started. Continue reading!
What Is Proof Of Employment Letter For Mortgage?
A proof of income letter or employment verification is a common requirement by a third party to verify that you have the necessary income to meet your monthly payment obligations. These payments could be a loan, rent, or mortgage. The letter testifies to your ability to meet certain financial commitments, as well as your regular income.
Why Employees May Need This Letter
When an employee demands an employment verification letter, it is usually for one of four reasons:
- They’re applying for a home loan or an auto loan, and the lender wants to make sure the employee has a stable job and enough earnings to cover monthly mortgage payments before approving the loan.
- They’re applying to rent a house, and the property management business wants to make sure they can afford the deposit, rent, maintenance, and other costs.
- They want to reduce or defer their loan payments, and the bank wants to see proof of actual salary before deciding whether to approve their request.
- They are interviewing with another company, and the company wants to prove their information as part of the background check procedure.
While an employee is not required to explain why they are requesting an employment verification letter, it is absolutely essential that they justify which pieces of data the other party requires as well as their contact details.
Why Do Lenders Need Employment Verification For Mortgage Loans?
One way lenders protect themselves and their clients is through employment verification. This process is used by lenders to ensure that prospective homeowners can afford their monthly mortgage payments.
Mortgage lenders typically accept a debt-to-income ratio of no more than 43%, which means that all monthly bills, including credit card payments, mortgage payments, car loan payments, and so on, must not exceed 43% of a buyer’s gross monthly income.
So, while proof of employment letter may appear to be a barrier during the mortgage process, keep in mind that it is also protecting you from getting a mortgage you cannot reasonably afford.
What Should Be Included In This Letter?
The information you include in employment verification letters is based on the requirements of the requesting party, as well as state regulations governing the types of data employers are enabled to disclose — specifically, what may be given to third parties.
Additionally, before you can share information with a third party, the employee may be asked to sign a release form.
An employment verification letter should be written on your company’s official letterhead or stationery, which should include the company logo. It may contain the following information:
- Employer address
- Name and address of the company requesting verification
- Employee name
- Employment date
- Employee job title
- Employee job description
- Employee current salary
- Reason for termination
Confirm with the appropriate person whether an email or a physical letter is required. When writing personal employment verification letters, use standard business letter format, with your company’s contact information, the date, and the recipient’s contact information in the upper left-hand corner.
Sample and Template
Here are some sample letters to help you write an employment verification letter or develop your company’s employment verification template.
Letter #1: Example of Employment Verification Letter for Mortgage
ABC Inc.
102 Main Street
Dallas, TX 7832
September 27, 2020
XYZ Loan Company
123 First Ave.
Dallas, TX 7890
To Whom It May Concern,
Please accept this letter as proof of Veronica’s employment at ABC Inc.
Employee Name: Veronica Lewis
Employment Dates: February 7 – Present
Current Job Title: Senior User Experience Analyst
Current Salary: $140,000
If you have any questions or need more information, please contact us at 413-845-2345 or hr@abcinc.email.
Sincerely,
James Richard
Human Resources Manager
ABC Inc.
Letter #2: Employment Verification Letter Template
[Organization]
[Address]
[City, State Zip Code]
[Date]
[Loan Company]
[Address]
[City, State Zip Code]
To Whom It May Concern,
Please accept this letter as proof of [Employee’s Name] employment at [Name of Organization].
[Employee’s Full Name]
[Employment Dates]
[Current Job Title]
[Current Job Salary]
If you have any questions or need more information, please contact us at [XXX-XXX-XXXX] or [email address].
Sincerely,
[Your name]
[Current Job Position]
[Organization]
Proof of Employment Letter For Different Scenarios
Key Takeaways
- The information you include in employment verification letters is dependent on the requirements of the requesting party.
- Employment verification may appear to be a barrier during the mortgage process, but keep in mind that it also protects you from obtaining a mortgage that you cannot afford.
- An employee is not required to disclose why they are requesting an employment verification letter, but they must justify which details the other party requires, as well as their contact info.