By Megan Wild
If you’re switching jobs or plan to in the near future, you might want to know how that impacts your ability to buy a house. After all, purchasing a home is a lengthy, stressful process once you tally up the time for mortgage approval and pounding the payment to find a home.
If you’re in the middle of considering a job change, your company has transferred you to a new area or you’re thinking of starting a new business, it’s prudent to think about how that affects any home-buying plans. Because, frankly, any job switch can have major impacts on your ability and plans to buy a home.
What Lenders Review When You Buy a Home
Lenders want to know you’ll be able to make your mortgage payments on any house you purchase. To that end, they carefully review a number of factors to assess your job security.
That means following the usual advice like not making any large purchases or deposits as you apply for a loan. You also shouldn’t apply for new credit, switch banks or co-sign on another loan. They'll explore how often you’ve changed jobs and scrutinize any period of unemployment. Most lenders also give weight to:
- The health of your industry and company
- Your training and qualifications
- Whether there are other jobs that fit your pay and training
- Your work history beyond two years
- Any increases you’ve had in pay and responsibility
They also often ask employers to confirm that employment will continue for the first three years of the mortgage. As you can see, changing jobs or job-hopping and obtaining a mortgage can be challenging.
Loan Approvals Continue Until Closing
“But,” you say, “I’ve already been approved for a loan. The coast is clear. I can switch jobs now and purchase a house with my approved loan!”
Well, not so fast. Yes, you are approved for a loan initially. You can switch jobs, and then go out and look for a house. However, be aware that the lender will also review your materials and circumstances at closing. Lenders are cautious and keen to know that those mortgage payments will definitely be forthcoming.
If you no longer have a two-year history with a firm, can no longer confirm likely employment for three years or other circumstances develop related to your job and income stability and income, it is entirely possible a lender will reject the loan.
If you have a loan guaranteed by the United States Federal Housing Administration (FHA), for example, which allows low down payments, it can reject a loan even after approval. So it can be risky to start the homebuying process if you plan to switch jobs.
Factors to Consider: When Job-Switching Would Have No Impact
That said, there are circumstances where job-switching would not derail your plans to purchase a home. If you change jobs but are still in the same industry, the lender will review your materials, but it is not likely to stop a loan. This kind of move shows the stability lenders like to see.
If your pay and benefits increase in the same line of work and industry, that would be fine with most lenders. In fact, it can increase the size of the loan for which you are eligible. Here, too, there will be a period when lenders require documentation on the new position, and they will ask your employers about the three years of expected job stability. If you plan to switch jobs during the home-buying process, it’s a good idea to let your lender know.
Factors to Consider: When Changing Jobs Would Have a Negative Impact
If you change to a job with lower pay, however, even if it is in the same line of work and industry, it might negatively affect your chances of obtaining or keeping a mortgage. The negative effect on your income is considered a sign of instability.
Similarly, if you switch your job title significantly or move into an entirely different line of work, you may have difficulty obtaining a mortgage until you have two years of history. So if you were a teacher and become a baker, getting lender approval might be challenging.
Lenders Get Nervous When Salaries Shift
Changes in the salary structure of a job may have hurt your chances of securing a mortgage as well. If you move from a salaried (W2) position to one where you will receive commissions, lenders may get nervous.
Why? Because commissions are variable income rather than stable. Most lenders require a 24-month history of any position that has variable pay, even if a commission-based job is likely to give you a higher income than a salaried one.
So if you are currently a tech support person and switch to technology sales, you will likely have to wait at least 24 months before a lender will approve you for a mortgage.
Similarly, if you move to a contractor or consultant role from a salaried position, you will need 24 months of income before a lender will consider you for a mortgage. Contractor and consultant income is not as stable as salaried income.
If your job switch involves starting your own business, you also would likely not secure a mortgage. Your lender will want to see at least 24 months of results on your business before making any mortgage decisions.
Consider the Possible Drawbacks of Switching Jobs While House Hunting
Buying a home while switching jobs can be challenging, because lenders require both income and job stability to approve a mortgage. Lenders will also check with employers to see if continued employment is likely during the first three years of a loan.
If you show job and income stability even while switching, you may be able to purchase a home as you go to a new company. But if you suddenly make less money, move to a different line of work, change salary structure or start your own business, you will likely need 24 months of stability before buying a home becomes feasible.
Nancy M. Alexander - Stone Harbor and Avalon NJ Real Estate NancyAlexander.com
