Table of Contents Show
- Can You Qualify for a Mortgage While Switching Jobs?
- When Does a Job Change Have No Impact on Your Application?
- When Does a Job Change Negatively Impact Your Application?
- New bonuses or commission-based pay structure
- Becoming a contract employee
- Switching industries
- Probationary periods
- What Can You Do If Switching Jobs While Applying for a Mortgage?
- Final Thoughts
For many people, there are two key goals in life, getting your dream job and your dream home. But when the attainment of these goals happens at the same time, things can get a little complicated. No matter how you spin it, changing jobs can affect your mortgage approval process—as such, accepting a new job while in the middle of applying for a mortgage is something you’ll have to consider carefully before making any final decisions.
Can You Qualify for a Mortgage While Switching Jobs?Can You Qualify for a Mortgage While Switching Jobs?
Generally speaking, changing jobs during a mortgage application is not at all advisable. This is because lenders prefer job stability above all else in a borrower, which, for most lenders, means at least a two-year history in your current job position. Any sudden change in your employer can be a sign of instability that damages not your chances of loan approval.
That said, the finer details of your situation do matter, and a lot will depend on your lender’s acceptance criteria. For instance, if you’re transferring to a new role in the same company with equal or higher pay, you may still be able to secure a mortgage. Other factors besides job stability will also come into play, such as your overall financial situation, credit score, and debt-to-income (DTI) ratio.
With that in mind, it is highly recommended that you discuss your job situation with your lender before either starting your mortgage application or accepting a new job in the middle of your application. Listen carefully to what your lender says and provide any verbal or physical proof you can of qualifications for approval.
When Does a Job Change Have No Impact on Your Application?When Does a Job Change Have No Impact on Your Application?
There are at least two scenarios where a job change shouldn’t significantly impact your mortgage application. The first scenario would be a job offer from another company in the same industry as your previous employer and with a substantial pay rise. Provided that this pay rise isn’t reliant on bonus income from commissions or over time, and you can demonstrate a long overall work history without frequent job changes, then you shouldn’t have much trouble securing a mortgage.
The second scenario would be a next-level promotion with your current employer that comes with equal or higher pay than your previous position. So long as you can demonstrate a strong track record of advancing up the ladder in your industry, your lender shouldn’t have any issues regarding your job stability. Your lender may even view your promotion as favorable to your application if you’re moving up from commission-based pay to a stable salary or a multi-year-long employment contract.
When Does a Job Change Negatively Impact Your Application?When Does a Job Change Negatively Impact Your Application?
Specific career changes will cause raised eyebrows for mortgage lenders. Be extremely cautious if your situation matches any of the following scenarios:
New bonuses or commission-based pay structureNew bonuses or commission-based pay structure
As part of role transfer within a company, employers will sometimes change an employee’s pay structure to a bonus or commission-based structure. This can allow an employee to earn more money, significantly complicating the mortgage application process. This is because incentive pay is only counted as income once it has been averaged out over 12 to 24 months. The only exception is an FHA loan, which allows for incentive pay to be counted with less than a 12-month history. However, this is typically only allowed in cases where the borrower holds the same job role as before under the same employer.
Becoming a contract employeeBecoming a contract employee
One of the worst things you can do during a mortgage application is to alter your employment status from a W-2 employee to a contract employee. This essentially makes you self-employed, so your work history paper trail will be interrupted. Lenders typically want to see tax returns going back at least two years before underwriting a self-employed borrower, which you won’t be able to provide if you’ve only just become self-employed.
Switching industriesSwitching industries
Lenders like to see indications that a borrower’s income can be reliably predicted over many years. That will be hard to do if the borrower has made a radical career change into a completely different industry. For example, a financial accountant with five years of experience suddenly becomes a nightclub owner. Dramatic career changes like this mean that a lender can no longer use the borrower’s prior work history to predict future income, which will be a serious red flag when reviewing a mortgage application. Ideally, lenders prefer to see loan applicants who have at least two years of experience in their current industry.
Probationary periodsProbationary periods
Employers will sometimes place new workers on a probationary period of up to three months, during which time their continued employment is subject to satisfactorily fulfilling the duties and responsibilities. The employee can be fired without advance notice during this period, so it’s no surprise that lenders will consider you a high risk if your new job includes a probationary period.
What Can You Do If Switching Jobs While Applying for a Mortgage?What Can You Do If Switching Jobs While Applying for a Mortgage?
Even when changing jobs shouldn’t have a big impact on your mortgage application, you still need to remain proactive by informing your lender and providing any supporting documentation you can. For instance, make sure you provide your lender with the following:
- Employer letter – This letter of intent from your new employer verifies your employment. In cases where you’re changing position within the same company, you’ll need to provide a title change letter.
- Verification of employment (VOE) – Similar to an employer letter, your VOE confirms your current employment status as well as your recent history of employment. This is a standard requirement by lenders when reviewing a borrower’s mortgage application.
- Most recent pay stub – Your most recent pay stub will provide evidence of your current employment.
Final ThoughtsFinal Thoughts
Buying a home and getting a mortgage approved is already complicated enough as it is. Changing jobs in the middle of all that will only create additional stress and could jeopardize your mortgage application.
Therefore, the most sensible thing to do is to delay your home purchase until you’ve settled into your new job. After two years, you’ll look very secure in your new job and will likely be able to secure better mortgage terms than you would have before. On the other hand, you can also delay your career change for a while and buy a home now if you feel it’s the right time.