Why do Lenders ask for Employment letters?
Checking for employment letters might seem like just one more piece of paper, but it’s important. It’s due diligence. And it works on your behalf.
A borrower will provide employment letters if requested when applying for a mortgage. You will also need a current pay stub dated within 60 days.
The mortgage broker informs the borrower for additional income documents. A lender requests the most recent 2 years Notice of Assessments or T1 Generals (tax return) or T4s certainly if overtime or bonus income is used to qualify.
Employment letters should provide the following details:
- Full or Part time permanent status
- Guaranteed minimum hours
- Guaranteed hourly rate or salary
- No probationary periods
- Any applicable overtime or bonus
- On company letterhead & signed by employer
The employer or individual that wrote the employment letter may receive a phone call from the lender to confirm the details of the letter.
Verification of employment letters is due diligence on the part of mortgage lenders. This is to reduce the likelihood of mortgage fraud with falsified employment letters.
If the employer is unable to verify any of the following information, more documentation proves that the applicant can indeed afford the mortgage based on the income information provided. Furthermore, there can be exceptions if a borrower is still on a probationary period. This exception can happen depending on the strength of the borrower and the file.
It can be an overkill with paperwork. A mortgage insurer can audit a borrower’s mortgage file. The mortgage insurer wants to ensure proper documentation was supplied to support the likelihood of repayment of the mortgage.
Above all, would you loan someone $300,000 when they only invested $15,000 (5% down) without confirming the ability to pay it back?
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