New job and new mortgage
Getting a mortgage during a job transition is common, and not a deal breaker for your mortgage.
For example, you relocate for a new position. You want to buy right away, instead of moving twice.
Or, you’re staying put but just changing employers.
You can get a mortgage when between jobs by applying for an offer letter mortgage. If you are already in your new job, that is even easier.
Most of the time.
To be approved, you need income that is reliable, stable and likely to continue for at least three years. And for new jobs, you have to be making an upward — or at least lateral — move within the same industry.
You don’t have to avoid job or career changes before applying for a mortgage, as long as you go about them the right way.Verify your mortgage eligibility (Aug 15th, 2020)
How lenders look at employment income
As long as your current job does not have a termination date, most lenders consider your employment to be permanent and ongoing.
Standard mortgage applications need a two-year work history listed. If you’ve been at your job or within the industry that long, no further questions are needed.
If you’ve got less time at your position than two years, your history comes into play. Here’s what the lender looks for:
- Your qualifications and training
- The health of your industry and company
- How often you change jobs
- Extended periods of unemployment
- Increases in pay and responsibility over time
- Work history within the same field
- Jobs that match your pay and training
If you change jobs before applying for a mortgage, lenders will have questions, and they will want more information from you. Be prepared to explain why you changed jobs, and list your qualifications for the new position.
Acceptable job changes
Most job changes should not adversely affect a mortgage application.
Know how your lender will view your career move before you apply. If it doesn’t “make sense,” delay your job change until your mortgage is fully completed.
Same industry, higher income
Bill has been working as a tax accountant for several years for the same company. He has been recruited by another firm, and it’s offering him 20 percent more income than his current company.
He wants to accept, but his new home is under construction and won’t close for two more months. Bill is concerned that a job change will affect his mortgage approval.
Bill’s job change should not impact his application negatively. In fact, the additional income will be viewed as beneficial.
- His total work history exceeds two years
- He does not change jobs frequently
- His new job is in the same industry
- His industry is stable
The lender will require at a minimum, an offer letter from the new employer. Bill will also supply a pay stub, if he receives one before closing of the loan.
The next-level career move
Pat is moving to take a new job and wants to buy a house right away. In fact, she’d like to buy her house before she starts work in her new town, but she’s worried about being approved for a mortgage when she’s not yet working.
She’ll be coaching a college volleyball team and has been given 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 will also be viewed as a positive.
- Her contract is for five years, exceeding the three-year minimum
- Her new job is a promotion from high school to college sports
- She has a strong track record in the industry
Note that frequent job changes do not disqualify applicants as long as they make sense.
FHA says a borrower who continues to advance in their line of work should be considered favorably.Verify your mortgage eligibility (Aug 15th, 2020)
Don’t make an “unacceptable” job change
Not all career moves are acceptable to mortgage lenders, even if you get paid more.
This is where you have to be careful. The following is a list of changes that could jeopardize your approval.
- Switching from salary to a bonus or commission structure
- Altering your status from W-2 employee to contract employee
- Changing to a completely different industry or position
- Moving jobs with no change in pay, responsibility, or location
Even if your pay increases, be careful about your pay structure. A seemingly small change can make a big different in your approval status.
New bonus or commission pay structure
Companies alter employee pay structures on occasion. They move a bigger portion of pay — or all of it — to bonus or commission.
While this gives the employee the potential to make more, future variable income cannot be counted without history.
The incentive-based portion of your income must have been received for 12 to 24 months, depending on the overall strength of your mortgage application and loan program.
FHA loans, though, allow commission-based income to be counted with less than a 12-month history. The employer must have changed the employee’s pay structure, and the employee must be in the exact same position with the same employer.
Contractors and consultants
You might sit at the same desk. You might do the same job for the same people. You might make more money.
But once you become a contractor, you become self-employed. You’ll need to show 12 to 24 months of self-employment income to get a mortgage with most lenders.
It’s one thing to go from driving a forklift for Ace Construction to driving one for Tip Top Builders.
It’s another to switch from a pharmaceutical sales rep to a nightclub manager. Delay the radical career change until you close on your mortgage.
Frequent lateral moves
A recent job change is not a big deal, unless it’s the latest move in a history of job hopping.
Going from college intern to full-timer at the same company to manager at a new firm makes sense. You’re checking the boxes and moving up.
However, “progressing” from multi-level marketing to Uber driving to personal training to dog walking makes you appear flighty. Lenders want long-term, steady employment. They are, after all, issuing a loan at a low fixed rate for up to 30 years.
What are today’s rates?
Mortgage applicants are getting approved at the highest levels this decade. Even if you think you can’t receive an approval, it’s worth checking your home mortgage eligibility.Verify your mortgage eligibility (Aug 15th, 2020)