One of the first things a lender looks for when you apply for a mortgage is your income stability, including from employment. Mortgage lenders want proof that you can afford the home and make your monthly mortgage payments in full and on time.
If you’re using employment income to qualify for the loan, they want to see a steady employment history, often with the same employer or in the same line of work. Changing jobs while buying a house can introduce uncertainty, and it can jeopardize your chances of qualifying for the loan.
However, changing jobs while buying a house isn’t necessarily a deal-breaker, as long as you communicate with your lender. We’ll explain why a change in employment is a big deal and how you can minimize the risk to your loan.
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The biggest concern if you change jobs while buying a new house is a drop in income or a change in how you’re paid.
“Changing jobs can be a good thing, but not if your income structure is changing,” says Joe Pessolano, a branch sales manager, Garner, N.C., with Fairway Independent Mortgage Corporation (Fairway owns Home.com). “There is a difference in salary, hourly, overtime, bonuses, commissions, and self-employed income. How these get averaged and the length of time that a borrower has received certain types of income often determine if they can be used for qualifying for a loan or not.”
Because of this, it’s better to avoid starting a new job during the loan application process if you can help it.
“You can change jobs during the homebuying process, but it’s not recommended,” says Jeff Satre, a branch manager with Fairway in Ashburn, Va. “Ask yourself, can this wait until after I close on my home? If not, then talk to your loan officer and you may be OK depending on where you are in the mortgage process.”
Sometimes, the timing can’t be helped and you need to start the new job while you’re buying the new home (we’ll talk about that scenario below). But if you’re in a steady position now and contemplating a career change, hold off until you’ve closed on the home and you’re confident you can handle your mortgage payments during the transition.
Same goes for becoming self-employed or quitting your full-time job to start a new business or become a contractor. The gig economy is hot, but moving from W2 to 1099 pay structure can have serious implications on your loan approval.
However confident you are that these endeavors will be a success, lenders need to use concrete numbers when approving borrowers for home loans. Venturing out on your own is a bold move, but it’s one you want to make once your loan is closed and funded.
Changing jobs while buying a house scenarios
|Current job||New job||Will you keep your approval?|
|One line of work||A different line of work or industry||No, unless you can draft a convincing letter of explanation about why these two roles and industries are similar|
|W2 (employee) pay||W2 pay||Yes, if income level remains the same|
|W2 pay||1099 (contractor) pay||Usually not, but there are some exceptions with FHA when performing the same job duties.|
|Salary only||Same projected income, but a mix of salary, bonus, commission||Only base salary from the new job can be used for approval. Bonus, commission, etc. must be received at least 2 years, with some exceptions for FHA|
|Commission, bonus, overtime||Commission, bonus, overtime||Potentially, if a long history has been established before the job change, for instance, being a top salesperson for 10 years|
|Part-time||Full-time||Yes, with a written verification from your new employer, or current employer if moving to full-time at the same company.|
|Self-employed||Salaried||Yes, if in the same line of work|
Britta Traub, a real estate investor with The Home Buying Family in Charlotte, N.C., explains that, especially in today’s market, economic uncertainties have driven lenders to tighten their standards.
“Underwriters of your loan will be monitoring and checking up on your job,” Traub says. “The whole premise of underwriting and verifying your employment status is to demonstrate that you can support your home loan. If you are currently unemployed, lose your job, or change jobs during the underwriting process, the lender will be apprehensive about loaning you the money.”
Note that your lender will thoroughly examine a variety of factors to determine your job security.
“They’ll look closely at how frequently you’ve changed jobs over a period of time as well as any periods of unemployment,” says Richard Latimer, CEO of Veritas Buyers, a real estate investment company in Hunstville, Ala.
A lender usually wants to see a minimum of two years of stable employment income – even longer if you are self-employed, according to Gennady Litvin, a real estate attorney in New York City.
“The shorter your work history, the lower your chances of obtaining a mortgage,” Litvin adds.
The job switch looks even worse to the lender if you move to a lower-paying job, “even if it’s in the same area of work and sector,” says Latimer. “The adverse influence on your income is interpreted as a sign of financial insecurity. After all, lenders want to ensure that you can afford the mortgage payments on any home you purchase.”
How changing jobs while buying a house can affect your loan approval or amount
Here’s the bottom line: If you switch jobs, go to work for yourself, suffer a pay demotion, or lose your employment less than two years before applying for a mortgage loan, you may be denied financing, moved to a product with a higher interest rate, or given a lower loan amount than you anticipated.
“Your mortgage loan is calculated according to the income you received at the job you listed in your application,” notes Litvin. “When you change your source of income during the application process, the best-case scenario is that you may have to wait a period of time to receive the minimum amount of paystubs required by that lender and any other confirming information about your new employment.”
In other words, if your loan isn’t denied outright, the lender may delay your mortgage application until a sufficient amount of time has passed in the new position.
Any instability in employment can also delay your home closing, too.
“Keep in mind that the lender will recheck your paperwork and financial circumstances during the closing process,” says Latimer.
In general, if you no longer have at least a two-year relationship with the company, cannot confirm expected employment, or other situations affecting your job and income stability occur, “it’s very feasible that a lender will refuse your loan,” notes Latimer.
Even worse, you may suffer financial penalties.
“In the state of North Carolina, we have a non-refundable deposit called ‘due diligence’ that can be a large amount. If your loan ends up getting denied, you won’t get that money back,” says Alice Ann Elam, a real estate broker with Caul Group Residential brokered by EXP in Raleigh, N.C.
Because changing jobs is such a red flag to lenders, think seriously about any career moves before you decide to buy. Changing jobs at least several months before buying, or waiting until after you’ve closed on the home, will improve your mortgage approval chances and make for an easier loan process.
Keep in mind that a complete change in line of work can signal risk to lenders as well.
“If you are staying in the same general line of work, that will make switching jobs during the mortgage process easier than if you are switching to a completely different line of work,” says Robert Martin, a residential mortgage specialist with Fairway in Sun Prairie, Wis.
The big question is how you’ll be paid at the new job, though, Martin says.
“If you are leaving a job where you were paid straight hourly wages/annual salary type of income and you are going into a position based on the same type of pay, that is normally not a problem,” he says. “However, if you are switching from an hourly/salaried position to one where you have commission or shift premiums and overtime that you want or need to use to qualify for a mortgage, this could be a problem. You normally need a two-year history of that type of income to be able to use it to qualify for a loan.”
Of course, life doesn’t always line up neatly, and sometimes changing jobs while buying a house can’t be helped. Fortunately, there are ways to move ahead with a home purchase even during a career transition.
Some borrowers have no choice but to accept new employment after losing their job. Others are forced to switch gigs due to an intolerable work environment, disability, or other unavoidable reasons.
In these circumstances, the experts say it is still worth trying to apply for mortgage loan financing; just be prepared to provide extra documentation and explanation.
“In this case, ask your new employer to submit a letter of recommendation to your lender explaining why and when you [will] change jobs and how they can vouch for you,” recommends Litvin.
Having at least one pay stub prior to closing can help your case as well, though Martin says a fully executed employment offer letter may suffice if your start date is close to or after your closing.
You’ll want to work with your lender to understand your options, especially if you’ve received an offer for a job at a higher salary or with better benefits and you don’t want to wait to accept for fear of missing out on the opportunity.
“If you are in a commission based job or work a lot of overtime, switching jobs can kill your loan approval, as we cannot count the overtime or commission income without a track record at your new job,” says Michael Graber, a Fairway branch manager in Montvale, N.J. “However, if you are strictly a salaried earner, I would tell you to take the new job and not miss out on an opportunity to earn more or have a better work/life balance. We can use the new income even before you receive a paycheck if you have a signed offer letter and are starting to work before your first mortgage payment will be due.”
If you are planning or will need to change jobs while your loan is being processed, talk to your loan officer as soon as possible.
“Avoid keeping your loan officer in the dark, they are your best resource for any questions or issues that come up during the process,” Martin says. “Talk with them, they are there to help.”
Traub suggests talking to your loan officer about other ways to strengthen your application, despite your recent job change.
“See if you can lower your debt-to-income ratio (DTI)*,” she says. “If you can demonstrate that you’ll be earning more income, your lender might take that into consideration, although you’ll need to submit proof of any new income via a rental agreement and other substantiation.”
Elam says it’s not impossible to get loan approval if you shift your employment or vocation during or just prior to the home buying process.
“It really depends on what type of loan you are pursuing. With a conventional loan, as long as you are staying in the same field and same pay structure, the lender may decide to proceed with the loan,” Elam explains. “With an FHA loan, however, it may be more difficult. Most lenders are going to need your income to be consistent with your new employer for a while before you can list that income on your application.”
Changing jobs while buying a house FAQs
You may lose your mortgage approval if you:
-Lose your job
-Rely on bonus, commission, or overtime to qualify
-Have a drop in income
However, your lender may be able to approve you if:
-You’re salaried or hourly
-You’re in the same line of work
-Your pay structure is the same
-Your income remains steady or increases
-You can provide an offer letter or other documentation showing you will be employed and able to afford your monthly payments.
The best thing to do is discuss a possible job change with your lender as early as possible.
Changing or losing a job can affect your mortgage approval. Depending on the nature of the change — whether your pay structure changes or you are moving to a new line of work, the lender may deny your application. They may also approve you, but for a lower loan amount. How a job change affects your mortgage offer depends on the circumstances and your new income rate and structure, so it’s important to tell your lender right away about any employment changes.
You may be able to close on a house while starting a new job if your income stays the same or increases and your pay structure doesn’t change. Your lender will be able to tell you what documentation they need for the new job, as well as how changing employment may affect your mortgage approval.
If you’ve recently changed jobs or or plan to do so before closing on a home, the most important rule to follow is prompt and open communication with your lender.
“It is critical to notify your lender as soon as possible if your employment status has changed or will change. Send all pertinent job paperwork to your lender promptly, and notify them if you sign a new employment contract,” advises Latimer.
The worst mistake you can make is not being honest and upfront with your lender.
“If you don’t tell the lender about your job change, your loan will ultimately be denied during the quality control and employment verification phases,” Litvin warns. “If your lender calls to confirm your employment and they become aware of your job change, they will require an explanation. But at this stage, you are likely going to be denied a mortgage.”
Some references sourced within this article have not been prepared by Fairway and are distributed for educational purposes only. The information is not guaranteed to be accurate and may not entirely represent the opinions of Fairway.
*Debt-to-income (DTI) ratio is monthly debt/expenses divided by gross monthly income.