Steady employment is certainly one of the biggest factors in qualifying for a mortgage to buy a home. Most lenders want to see that you’ve worked at your job for at least two years when considering your ability to afford a mortgage payment. However, life throws a number of different circumstances at us all the time, so let’s break down what might happen if you’re switching jobs at the same time you want to buy a new home.
How Lenders View Employment
Most lenders consider your employment as permanent and ongoing as long as it does not have a termination date. If you’ve been at your employer for at least two years, you’re considered gainfully employed. If you’ve worked at your employer less than two years, the lender may look at these factors:
∙ The health of your company and its industry
∙ Your qualifications and training
∙ Extended periods of unemployment
∙ Your work history in the same field
∙ How often you change jobs
∙ Your past increases in pay and responsibility over time
∙ Other jobs that match your pay and training
If you’re switching jobs before applying for a mortgage, be prepared to explain why and offer more information, such as your qualifications for the new position.
Jobs with Increased Pay or Promotion
If you’re switching jobs because you found a position that offers higher income, then lenders generally view that favorably. Moving up a level in your career is also considered a good reason for switching jobs and in general will be viewed positively. At a minimum, they will require an offer letter from the new employer if you’ve not yet started the new job. But they are likely to look at these factors as well:
∙ Are you staying in the same industry?
∙ Does your total work history exceed two years?
∙ Is your industry stable?
∙ Have you switched jobs frequently?
Any of these factors could play a role in helping or hurting your qualifications.
Jobs with a New Pay Structure and Commission
Switching to a company where the pay structure is mostly commission or bonus-based makes the process a little trickier. Even if the company gives you the ability to make more, future variable income doesn’t count as proof without any history. You’ll need to have 12 to 24 months of the incentive-based income as history, depending on the strength of your overall mortgage application.
Contracting and Consulting
If you switch from an employee to a contractor or consultant, the playing field changes. Even if your new position is more lucrative, you’re now considered self-employed and typically must show 12 to 24 months of self-employment income to get a mortgage. However, if you’ve secured a long-term contract, such as five years, and you have history working in the same field, you may still have a strong application for a mortgage.
Job Changes That Can Jeopardize Mortgage Approval
Income potential alone isn’t enough to get your mortgage approved. There are indeed some job changes that are unfavorable without income history in the same field and position. These include:
∙ Frequent lateral moves with the same income
∙ Changing to a different industry and position
∙ Changing from a W-2 employee status to self-employed
∙ Switching from a salaried to a commission job
∙ Switching to a lower position with less pay
Try sitting down with several different lenders to compare their positions on your job plans and how that affects your qualifications. Remember, not all lenders have the same restrictions. Working in the field or position you desire is a critical decision. If you’re not able to make the timing work with securing a mortgage, it may be wiser to first get established in your new job and career path.
Real Estate Term of the Week
Offer Letter Mortgage: A non-contingent offer of employment, in letter form, by the employer, which documents the start date, position of the job, salary, benefits, terms, and duties of the employee. The employment offer letter needs to be signed by the mortgage loan applicant and the new employer. This tool is used by college graduates and employees switching jobs to secure a mortgage for a home in lieu of a two-year work history at the company that is hiring them.