How a Job Change Can Derail The Home Buying Process
When you apply for a mortgage you will probably receive titbits of advice about how you can improve your chances of getting approved such as getting a pre-approval or building up your credit history. However, the two other most important factors that can affect your eligibility are your employment and job stability.
Let us take a look at why lenders look at job stability and how a job change can affect your ability to qualify for a mortgage
Why Lenders Look at Employment and Job Stability
The lender will want to ensure that you can repay the mortgage. Therefore, verifying your employment history and income stability is an important aspect of the mortgage approval process.
Lenders also look for steady employment with no gaps, as this indicates a lower credit risk than someone who changes jobs frequently.
When Switching Jobs Is Not a Mortgage Deal Breaker
Even though lenders may look into your income and employment history for the last two years, a few scenarios that will not disqualify you from getting a mortgage include:
- If you are a salaried or hourly employee who does not earn additional compensation like bonuses, commissions, or overtime and takes up a similar job with the same pay structure.
- If you switch to a job in the same profession you have worked for two years or more with a higher salary and benefits.
- Moving to a new job in the same company with more responsibilities and higher wages.
- If you have recently retired from the military and your new job duties are related to your military service, you may be eligible for a VA Loan.
When Switching Jobs Can Be A Mortgage Deal Breaker
If switching jobs makes your income less predictable then this could be a red flag for your loan officer. The scenarios that can derail your mortgage application are:
- Switching from a salaried job to a commission-based, bonus-based, or hourly paid position: Without the required history of receipts, switching from a salaried to a commission-based or hourly pay structure can derail your mortgage approval as they will often be averaged over the previous 24 months.
- Altering your status from a salaried employee to a contract employee or self-employed: Though some programs may accept a year of self-employment, most lenders prefer a two-year track record. Also, without your tax returns, the underwriter may find it difficult to assess your earnings.
- Switching to a completely different job or industry: Lenders look for evidence that indicates a stable stream of income in the future. If your new employment is not related to the same line of work it can cause additional problems as lenders prefer two years of work experience in the same or related field.
- Bouncing from job to job: Job changes that indicate progress such as moving from an intern to a full-time employee and then to a manager in the same firm will not be an issue of concern. But, if you change jobs frequently it will not show professional growth and lenders can worry about your ability to pay off your mortgage.
- Changing from a well-paying job to a lower-paying one: This will indicate that you are in a state of flux and lenders will be hesitant to lend you money.
You can Still Get a Mortgage with a Job Change
Fortunately, switching jobs does not rule off the possibility of obtaining a mortgage. If your work status has recently changed or may change before closing, the most crucial thing you should do is keep your lender aware of any changes in your financial situation right away. This is important as your loan application must be updated, and the lender will have to do an employment verification before funding your mortgage. Therefore, explain why you have switched employment, why it is a positive thing, and submit any essential documents the lender needs about the transition.
In actuality, what all lenders are interested in is the borrowers’ capacity to make their payments. So, besides analyzing your income and job stability lenders take into account your three-digit credit score and your debt-to-income ratio. If you have a three digit FICO score in the 700 range and a debt-to-income ratio of 43% or less, your two-year job history will not matter much. Most lenders will overlook the fact that you started a new job recently as long as you have adequate money to cover your monthly payments.
Finally, if you’ve already secured your home financing and your offer has been accepted on a home, do not switch to a new job before your closing!
Do you have any other questions regarding this and other factors that can affect your home buying process? Contact a Ratebeat Loan Officer for answers today.
