Are you considering a career change or taking a break from work? That's great! But before you do, you should know how a gap in employment may impact your mortgage application process in Canada.
After all, your employment history is one of the key factors that lenders consider when determining your eligibility for a mortgage. But the impact of a gap in employment on your mortgage application can vary depending on several factors, including the length of the gap, the reason for the gap, and your overall financial situation.
First and foremost, lenders want to see stability and consistency in your employment history. A gap in employment can raise red flags and lead lenders to question your ability to repay the mortgage loan.
However, all hope is not lost! Lenders understand that life happens, and sometimes a gap in employment is unavoidable. In these cases, they may look for alternative sources of income such as rental income, investments, or government benefits. So, a gap doesn’t necessarily mean you can’t get a mortgage.
Well, the truth is, there's no set rule for how big of an employment gap is acceptable when it comes to applying for a mortgage in Canada. It all depends on the lender and their specific guidelines. Some lenders may be more lenient and overlook a gap of a few months, while others may require a steady income history for a certain number of years.
However the bigger the gap, the more of a red flag it might be for lenders. They may question why you weren't employed during that time and whether or not you'll be able to make your mortgage payments. A general rule of thumb, for most lenders is, a gap in employment of less than six months is usually not seen as a major concern. On the flip side, if your time off is longer than six months, it may be more difficult to get a mortgage, as lenders will view this as a significant risk factor.
So, if you have an employment gap on your record, it's a good idea to be prepared to explain it and show proof of any alternative sources of income during that time, like unemployment benefits or freelance work.
While most criteria is still in place–think about having a good credit score, your debt ratios, and being able to qualify with the mortgage stress test–there are a few steps you can take that may help improve your chances to get approved for a mortgage, even if you have a gap in your employment
When applying for a mortgage, it's important to be transparent about your employment history, which means including any gaps in employment. Lying about your employment history can lead to more serious problems down the line, so it's always best to be upfront and honest with your lender.
If there’s a specific reason for your gap in employment, such as medical leave, a family emergency, or career change, be sure to explain this to your lender. Providing context can help mitigate any concerns your mortgage lender may have. Explain the reasons for the gap and how you have been keeping yourself busy during that time.
If you have a gap in your employment, it's important to show stability in other areas of your life, such as your residency, financial standing, and credit history. This will help convince lenders that you are a low-risk borrower even if you have a gap in your employment. You can do this by having a consistent address over a period of time, demonstrating a steady savings history, and maintaining a good credit score.
You may want to consider saving up for a larger down payment if you have a gap in your employment. This will lower the amount you need to borrow and can also help offset any concerns that the lender may have about your finances. It can also improve your chances of getting approved for a mortgage while demonstrating your financial stability.
Aim to save as much as you can for a down payment, and consider asking family–if possible–for help if needed, like a gifted down payment.
If you have been doing freelance work or consulting jobs during your employment gap, be sure to provide proof of this income to the lender. This can include contracts, invoices, and payment receipts. Providing proof of alternative income can help increase your chances of getting approved for a mortgage as it demonstrates that you still have a stable source of income.
If you have a friend or family member with good credit and a stable income, they may be willing to cosign on your mortgage. This can help increase your chances of getting approved, as the lender will have a second source of repayment if needed. However, it's important to keep in mind they become equally responsible for the mortgage and its payment. Be sure to choose someone you trust and make sure they’re fully aware of the responsibilities involved.
In conclusion, a gap in employment can impact your ability to get a mortgage, but it doesn't necessarily mean that you won't be able to get approved. With the right approach and preparation, you can improve your chances of getting a mortgage and achieve your goal of home ownership. If you have any questions about the approval process or are ready to apply, one of Pine’s mortgage agents would be delighted to speak with you.