Employment Letter for Mortgage Approval

Mortgage applications can feel overwhelming. The entire journey of buying your dream home is full of emotions, and the process of getting a mortgage can make it even more daunting. But it does not necessarily have to be that way.

If you research well and spend some time understanding what documents are required, their formats, and what should be included, the process becomes much less stressful. Some of the core documents required for a mortgage are bank statements, income proof, tax returns, W-2s, investment statements, a letter of employment, pay stubs, and more.

The letter of employment is an important document in this process. It is issued by your employer to validate your income and employment status. The employment letter can be provided by your employer directly, or your lender may obtain it from your employer. For remote workers, a remote work letter is necessary. For self-employed individuals, a self-employment letter must be supported by documents from a third-party source.

Keep reading as we uncover all the relevant aspects of a letter of employment for a mortgage.

A Letter of Employment – What Is It?

It is a document that your employer gives you, mentioning your employment status. The letter details the name of the employee, job title, salary, and how long the employee has been employed with the employer.

If you have decided to take a home loan, you would need to ask your employer to provide a letter of employment, and that too as soon as the lender requests it. This is a prerequisite for getting your loan through underwriting, so you can get prequalified and preapproved without delay.

Why Does My Mortgage Lender Require a Letter of Employment?

There are two main reasons why lenders ask for a letter of employment when you apply for a mortgage:

1. To assess your creditworthiness: A steady income shows lenders that you have the means to repay the loan.

2. To understand your financial stability: Having a long-term job indicates financial reliability, convincing lenders that you can make your monthly mortgage payments.

Getting a Letter of Employment

There are two different processes for getting a letter of employment, depending on your type of employment.

1. Employed with an Employer

In this case, the employer issues the letter of employment. Sometimes, the lender may contact your employer directly. In most scenarios, the lender will only ask for your employer’s contact details.

If the lender asks you to obtain the letter yourself, you will need to request it from your human resources (HR) department. They should provide the letter within a few days.

Necessary Details in the letter of employment

The letter should include the following details:

• Name

• Job title

• Start date of the job

• Remuneration, including bonuses, commissions, etc.

• Any other details requested by the lender

2. For a Self-Employed Person

If you are self-employed, you will need to prepare a letter stating your self-employment status. The letter should include:

• Your name

• Name of your business

• Start date of your business

• Your yearly income

• A brief description of your business

• Any other details requested by the lender

This letter must be written, signed, and dated by you before submission to the lender.

What Should Be Included in a Letter of Employment?

A typical letter of employment should include the following:

• The name of the applicant and their designation

• Employer name and address

• Employment length and start date

• Salary and compensation details

The letter must be printed on the letterhead of the employer. It should also be signed and stamped by an authorized person from the company, usually someone from the HR department.

What to Avoid?

Avoid the temptation to write your own letter of employment. For most lenders, this can be seen as a loss of credibility.

Note: Submitting the employment letter does not guarantee mortgage approval. However, it is a necessary document that helps loan providers evaluate your capacity to repay the loan amount.

Example of a Letter of Employment for Mortgage Approval

It is important to note that the letter of employment may differ depending on:

• The lender's requirements, and

• The employer’s specific processes

For example, for Fannie Mae conventional loans, a Request for Verification of Employment must be completed. A typical letter of employment usually looks like this:

Company’s Name

Address & Phone Number

Date

Mortgage Lender Name

Name & Address of Mortgage Company

Dear [Mortgage Lender Name],   (A sample letter can be included here)

Remote Workers’ Employment Letter

If you are a remote worker and have applied for a mortgage, the lender will ask for an employment verification letter. Your lender may sometimes conduct the verification via email or over the phone.

For remote workers, the letter must come from the employer and include details such as your name, position, salary, and duration of employment. If you are located in a different state or region from your employer, this should also be mentioned.

The remote employment letter must come from your company’s HR department. If there is no formal HR department, the letter should come directly from your supervisor or office administrator.

The letter must clearly state that you are a remote worker. It should include the following:

• Letter on the company’s letterhead

• Date of the letter

• Employer contact details

• Job title

• Current salary or pay scale

• Full-time or part-time employment

• Start date of employment

• Duration of employment

• Confirmation that you are a remote worker and authorized to work in a different area; it should also state that this is not a temporary arrangement

• Confirmation that you have permission to work remotely for the next three years

• Signature of authorized personnel

FAQ

1. Am I allowed to write a self-employment letter?
   The letter of employment should typically come from your employer, as this demonstrates credibility to the lender. A self-written letter is usually not accepted, except in the case of self-employment, where it must be signed and dated by you.

2. Can the lender directly speak with my employer to obtain the employment letter?
   Yes. The lender is allowed to contact your employer directly to verify your employment details, including income, time, and duration of employment. Most lenders will inform you and obtain your consent before doing so.

3. Is a letter of employment required for renting a residence?
   If your landlord or property management company requests it, you will need to submit a letter of employment. While not all landlords require it, the letter helps verify your employment stability and income before approving your rental application.

Conclusion

The employment letter is a formal document through which an employer verifies an employee’s current employment status. While the letter does not guarantee that the lender will approve the loan, it is a necessary part of the mortgage application process, as it helps lenders assess the applicant’s creditworthiness.
Need help understanding the nitty-gritty of an employment letter for mortgage approval? Speak with us at Total Mortgage.