Can you change jobs when buying a house?
Changing jobs while buying a home can cause your loan application to fail. But changing jobs before applying for your home loan should be less of a turmoil.
You still need a reliable, stable and likely future income. And your new job should be an upward entry or at least a lateral entry within the same industry.
As long as these criteria are met, changing jobs before buying a house shouldn't be a problem.
Check your mortgage eligibility. Start here (11.12.2021)
In this article (continue to …)
How Lenders Look at Employment and Income
As long as your current job has no termination date, most lenders consider your employment to be permanent and ongoing.
For a standard mortgage application, underwriters must look at a two-year work history. If you've been in your job – or in the industry – for so long, you shouldn't need to ask any further questions.
If you've spent less than two years in your career, your professional history comes into play. Here is what the lender is looking for:
Your qualifications and educationThe health of your industry and companyHow often you change jobsLonger periods of unemploymentIncreased pay and responsibility over timeWork history in the same fieldJobs that match your pay and education
If you start a new career before applying for a mortgage, lenders will have questions and ask for more information from you.
Prepare to explain why you changed jobs and list your qualifications for the new position.
How Lenders View Your Job Change
There is a big difference between changing jobs before buying a house and changing jobs while buying a house.
Change jobs before applying for a mortgage
If necessary, you can change jobs in the months or weeks before the start of the loan application process. In fact, your loan application shouldn't be affected by a promotion at all.
But some job changes can make your application difficult, even if you haven't applied for a loan yet. We'll explain more below.
Changing jobs while applying for a mortgage
Changing jobs after you've applied for a mortgage but before the loan expires can wreak havoc on your application.
If you change jobs after applying for a loan, the underwriters will have to start over and your application will have to start from your new job. Also, if you switched careers, you'd have a shakier employment history from the lender's perspective.
Your new job may still have you approved, but with some delays.
Check your mortgage eligibility. Start here (11.12.2021)
Acceptable job changes before buying
Most job changes shouldn't affect a mortgage application if you haven't already applied for your mortgage.
However, before applying for your new mortgage loan, you should do some research on how your lender sees your career move. If changing jobs is causing a red flag for your loan officer, consider postponing your job change until you complete your new home loan.
Typically, job changes that resemble the following scenarios won't cause any problems with your loan application – as long as you complete the career transition before you start buying a home:
Same industry, higher income
Bill has worked as a tax advisor for the same company for several years. He was hired by another company and has 20 percent more income than his current company.
He wants to accept, but his new home is under construction and he will need a new mortgage if the house is ready in two more months. Bill fears that changing jobs could affect his mortgage approval.
Bill's job change shouldn't have a negative impact on his application. In fact, the extra income is seen as beneficial:
His entire professional career is longer than two years He does not change jobs often His new job is in the same industry His industry is stable
The lender needs at least one letter of offer from the new employer. Bill will also provide a pay slip if he receives one prior to completing the loan.
The next step in your career
Pat is moving to a new job and wants to buy a house right away. She actually wants to buy her house before starting work in her new town, but she's worried that a mortgage will be approved if she's not already working.
She coaches a college volleyball team and has a five-year contract. She has coached high school girls for over a decade, but this is her first college team.
Pat's new job is also seen as a positive change because:
Your contract has a term of five years and thus exceeds the minimum term of three years. Your new job is a promotion from high school to college sports
Note that frequent job changes will not disqualify applicants as long as they make sense.
The Federal Housing Administration, which supports FHA mortgages, says a borrower who continues to advance in their industry should be viewed positively.
Don't make an "unacceptable" job change
Not all career moves are acceptable to mortgage lenders, even as you may earn more in your new career.
Caution is advised here. Below is a list of changes that could jeopardize your mortgage approval:
Change from a permanent position to a bonus or commission structure Change of your status from W-2 employee to contract employee; This would be one of the worst things you could do as it disrupts your work flow. Change to a completely different industry or position
Even if your salary increases, pay attention to your salary structure. A seemingly small change can make a big difference in your approval status.
Let's take a closer look at each of these scenarios:
New bonus or commission payment structure
Sometimes companies change the pay structure of their employees. They shift a larger part of the salary – or all of it – into bonuses or commissions.
These changes can help an employee earn more, but they can also make the mortgage application more difficult.
The Incentive must have been received for 12 to 24 months to be considered income, depending on the overall strength of your mortgage application and loan program.
However, FHA loans allow commission-based income set-off with a history of less than 12 months. The employer must have changed the employee's wage structure and the employee must be in exactly the same position with the same employer.
Contractors and consultants
You could be at the same desk. Maybe you do the same job for the same people. You could make more money.
But once you become a contractor, go into business for yourself. If you've been self-employed for less than five years, you'll need to share your income tax forms to document your income.
If you own your own business, you can report your income using a business tax form.
Sometimes lenders let borrowers use bank statements to show receipts in the form of bank deposits.
It's one thing to drive a forklift for Ace Construction to drive one for Tip Top Builders.
Moving from pharma sales rep to nightclub manager is another. Postpone that radical career change until you close your mortgage and start making mortgage payments.
A meaningful statement letter showing why you changed industries could alleviate your lender's concerns. For example, if you explain that you've switched industries to get a higher salary, the underwriters are likely to be more understanding.
Frequent lateral movements
Changing jobs recently isn't a big deal unless it's the newest step in job hopping history.
It makes sense to move from a college intern to a full-time employee in the same company to a manager in a new company. You tick the boxes and step up.
However, the "advancement" of multilevel marketing to Uber driving to personal training and dog walks makes you seem fleeting. Lenders want long-term, stable employment histories.
Eventually, they give out a loan at a low fixed rate for up to 30 years.
Mortgage approval factors in addition to employment
Mortgage lenders care about employment history as it can predict an applicant's ability to repay their new home loan.
But other factors also play a role. Along with a stable work history, you will be a stronger loan applicant if you:
A lower debt-to-income ratio (DTI): DTI measures flexibility in your monthly budget. For example, if you have a lot of credit card debt, your DTI will be higherA higher credit score: Your credit history shows your debt repayment history. A score of at least 620 can create more loan options, but it is possible to get an FHA home loan with a score of 500A larger deposit: Most mortgages require you to pay at least 3 percent less, although VA and USDA loans allow you to skip the down payment. Exceeding the minimum deposit can help you qualify for some loans
More powerful application not only helps you qualify, but it can also lower your monthly payments as it allows you to get a lower interest rate.
Check your mortgage eligibility. Start here (11.12.2021)
Will my professional career influence the refinancing?
Professional history plays a role when homeowners refinance an existing home loan.
Refinancing replaces your current loan with a new loan. Since you are getting a new loan, the lender will require an employment and credit check – just like they would if you were buying a home.
There are a few exceptions.
For example, a streamline refinance may not require an employment verification. With an optimized refinancing, the credit check and even the house valuation can be skipped, which lowers the closing costs and saves time.
But Streamline Refinancing also requires you to stick to the same type of mortgage: for example, an FHA loan must stay an FHA loan.
FAQ on changing jobs when buying a house
What happens if you change jobs while buying a house?
Changing jobs after applying for a mortgage but before the loan expires can jeopardize your loan. If you have no choice but to change jobs, notify your loan officer or mortgage broker right away. The underwriters will have to start processing your application again. Despite the job change, you can still be approved, but may not.
Can I change jobs when I buy a house?
Avoid changing jobs until you have completed the mortgage application process and completed the loan. Switching jobs before graduation will affect your loan approval process. At best, their closure could be delayed. In the worst case scenario, you will no longer be entitled to the loan.
Do Lenders Review Employment Upon Closing?
No. Once your loan is completed, the lender will not reopen your loan so there is no need to double-check the employment after it is completed. However, moving jobs after the closure may affect your ability to refinance the loan if you plan to do so within the first few years of home ownership.
Can I quit my job before I close a house?
If you quit your job before it closes, you risk your mortgage loan. Lenders will not approve your home loan if you do not have enough income to pay the monthly installments on the loan. You may be able to quit a part-time job if you don't use the income on your loan. But it is best to avoid major changes until after the loan is taken out.
What are today's tariffs?
Mortgage applicants can obtain home ownership if they have solid professional backgrounds and meet other credit qualifications.
With interest rates still hovering at all-time lows, homebuyers can often qualify for larger home loans with lower monthly payments.
Even if you think you can't get approval, it's worth checking your home mortgage eligibility.
Confirm your new plan (December 11, 2021)