Accepting a new job can be exciting. But if getting a new contract coincides with your home buying plans, it may affect your ability to get a mortgage, even if you make more money in your new job.
When you apply for a home loan, lenders take a deep look at your financial history, including your current job, to see if you can handle the monthly mortgage payments.
“Any changes in your income and employment can affect your ability to get a mortgage,” says Esther Phillipssenior vice president of Chicago-based Key Mortgage Services.
The ramifications can range from having to provide additional documentation to not being approved for the loan, Phillips says.
“Don’t assume just because you were approved in a previous position that the underwriting guidelines will treat your new position the same, even if you make more money,” says Phillips.
Changing jobs when applying for a mortgage is not a deal breaker, but it can introduce a level of uncertainty that could cause lenders to act more cautiously. Below are some factors to consider when considering taking on a new job when buying a home.
Timing is everything
When applying for a mortgage, when you changed jobs is crucial.
Change job before applying for a mortgage may have little or no impact on a person’s ability to obtain a loan. But moving to a new position during the application process “comes with a lot more complications and timing implications,” says Phillips.
Additionally, if a homebuyer completely changes occupations, a lender might consider their work history to be more shaky.
Lenders will review the details
It’s the details of your work situation that matter, including whether you receive a salary, hourly wage, or bonuses/commissions.
Dj Olhausen, a Realty ONE Group Pacific Realtor®, says moving to a lower-paying position can reduce a homebuyer’s eligibility for a loan. Another example is when an employee moves from a salaried or hourly job to a commission-based sales position.
“These types of moves can seem risky to a lender,” says Olhausen.
Another reason loan applicants could lose their eligibility is if they start their own business and are now considered self-employed.
“This type of transition from a W-2 to a freelance position can also be considered an increased risk,” says Olhausen.
Different underwriting guidelines are associated with different types of employment, Phillips says. For example, an independent home buyer will generally need to provide a two-year income history.
For someone moving from wage to wage employment with no variability in income, “the impact is usually minimal and may require little more than documenting past and new jobs,” says Phillips.
Make sure to be transparent
Whenever potential buyers consider changing jobs, it’s important that they be transparent with their lender.
“The first step is to contact your lender and explain your professional situation to them,” says Olhausen. “Many times, if the new position is in a similar industry, or is considered similar to your old job, the mortgage process may not be affected.”
When you contact your lender, you should be prepared to explain why you are considering changing jobs.
It’s important to be transparent and detailed with your lender about your job and income because “your loan officer can outline all of your options and let you know if and when you should change jobs during the funding process. of the house,” says Phillips.
“If there are issues, it makes sense to discuss them ahead of time rather than taking your lender by surprise,” says Olhausen. “Just be sure to be upfront with the lender so they can help you navigate this situation.”