What's the logic for the length of service (employment) criteria for mortgage applications?
On a mortgage application, what's the logic - and is there any evidence for it - regarding longer length of service being 'better' for an applicant?
I can understand if you've only been in the job a week, sure.
But having been at a company for 5 years just says that the company was hiring 5 years ago. "Only" 3-6 months service means that the company was hiring quite recently and so is in a growth phase, or at least not a recruitment freeze? Which would seem to be a good thing statistically for outlook of that job.
Edit: this isn't about a specific lender's policy, but the general recommendation about that.
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In a word: risk.
Mortgage lenders are concerned about risk. Sure, the mortgage is backed by the value of the home, but foreclosing on a house is expensive, time-consuming, and hurts the lender's bottom line.
So the lender wants to make very sure that the mortgage holder will be able to make his monthly payments. Someone who has had a steady job for the past x years is less risky than someone who just got a new job.
It comes down to the statistics. The lender doesn't care if the employer's company is growing, or the employee has any number of reasons why their job outlook is good. Lenders use numbers and tables and statistics to calculate their risk when someone wants to borrow their money. They've found length of employment to be a useful number, so it factors into their decisions and interest rates.
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