Sometimes life can throw numerous significant events at you simultaneously, like getting your dream job while being in the process of applying for a mortgage.
But, can you switch jobs when buying a house, or will this derail your application and leave you stranded? It’s no secret that buying a house is a huge financial commitment. So how can you get lenders to view your job swap favourably?
Although there isn’t a simple answer, there are some things you need to keep in mind, so let’s get right into it!
Can You Switch Jobs When Buying a House?
Changing jobs while buying a house might not seem interconnected, but that couldn’t be further from the truth. Generally, the main area of concern for mortgage lenders is whether or not you’ll be able to sustain your previous income and keep up with your payments.
So, will changing jobs affect getting a mortgage? In short – it might, but not always. Generally, it depends on the type of job change, when you made it, and your new income.
How Do Lenders View Income?
The most important thing borrowers need to consider when getting a mortgage with a new job is how their income will come across to prospective lenders.
Generally, lenders will closely look at your annual salary and calculate whether you can successfully keep up with your mortgage payments. Additionally, the mortgage company will take into account your hourly wage, as well as how often you receive overtime pay.
If you work on a bonus or commission, some lenders might be tentative because your income lack predictability and is subject to frequent changes. The same could also be said for self-employed individuals since lenders might have a harder time gauging stability, especially for contract work.
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How Do Lenders View Job Changes?
Lenders might behave differently depending on when you made your swap.
Consequently, if you change jobs before buying a house, it could complicate your application, but not much. However, suppose you got a promotion or simply moved to a similar role in another company. In that case, your loan application won’t be affected since you’ll still be generating stable income.
On the other hand, changing jobs during the mortgage application and before the loan closes could cause significant turmoil because underwriters need to start their work all over again and use the details of your new job. Moreover, the lender may view your work history as unstable if you’ve undergone a significant career change.
Although you may still get approved, your application will be unnecessarily delayed.
Lastly, changing jobs after your mortgage approval can also make some lenders doubt your ability to pay everything off, especially if you have a different salary. Therefore, it’s best if you can delay the start of your new job until after the lender has funded your mortgage.
How Long Do I Have to Be In a Job to Get a Mortgage?
If your current job doesn’t have an official termination date, it’s considered permanent employment. Usually, underwriters will require a 2-year work history to ascertain the stability of your income. Therefore, they won’t ask you any more questions if you haven’t moved to a new role or changed an industry.
However, if you’ve been employed in a career for less than two years, your lenders will look at other factors and ask you additional questions, which we’ll discuss below.
Acceptable Job Changes When You’re Buying a House
Getting a new job while buying a house won’t be a problem if you go about it a certain way. To ensure your mortgage application goes through seamlessly, your job change should follow one of these paths:
Same Industry, Higher Income
If you’re considering changing jobs before closing on a house and moving to another role in the same industry, you won’t have to worry about a thing. Especially if your new position’s salaried pay is higher than the one you applied with and you haven’t switched to a contractor or commission role.
Next-Step Career Moves
If you get promoted from a junior to a senior role in the same company (or a different one in the same industry), lenders will view you favourably since your job change follows a predictable upwards track. And since your new job title will probably come with a larger salary, lenders will have more faith that you’ll be able to pay off your mortgage.
In such instances, buying a house with a new job will be a piece of cake!
Unacceptable Job Changes
Before starting a job search, you need to know which job change will repel lenders so that you can avoid it.
Switching From a Salaried to a Bonus or Commission-Based Position
Unfortunately, this is a red flag for most lenders since your income will become harder to predict. As a result, they’ll either deny your application or offer you a higher interest rate to ensure they’re getting a fair deal. Moreover, since you don’t have a 2-year history of earning this type of pay, you may not qualify for a mortgage.
Going to a Completely Different Industry or Position
Switching jobs during the mortgage process will be a problem if your new role seems distant from your previous one. To many lenders, this can come across as unpredictable and unnecessary, especially if there is no significant increase in pay. Therefore, most will be unwilling to approve your application.
Moving Jobs with no Change in Pay, Location, or Responsibility
Job changes like these can make lenders think you’re unhappy with your current position and will likely move again soon. Consequently, they might view you as high-risk and might reject your application, as such swaps can look bizarre.
Starting Your Own Business Right Before You Apply for a Mortgage
Since your new business might not be profitable yet and hasn’t shown an increasing trend, lenders won’t know whether you can afford your mortgage payments. If you can provide evidence that your company is doing well, you might still get approved, albeit it will be harder than if you had steady employment.
Frequent Lateral Moves
As job hopping doesn’t look good on a CV, it isn’t great on a mortgage application. Although switching jobs when buying a house might not cause problems in some situations, changing positions often will make it hard for lenders to understand your employment situation.
Plus, they’ll likely think you lack direction in life, which can translate to frequent money troubles or an inability to pay off your loans.
What Lenders Want to Know When It Comes to Job Changes
When you’re in the process of getting a new job, your mortgage approval will be subject to additional questions that can help the lender understand your employment history. Usually, they’ll want to know:
- Why you changed jobs and whether or not your new position comes with a larger pay stub
- How often you switch jobs and if your swaps are the next logical move in your career (a promotion)
- Unemployment periods, how long they lasted and why you were left without a job during the time
- The health of your employer and industry in general to guess if your job is profitable and if the industry is growing
Besides these points, don’t be surprised if your lender asks for even more information about your employment. Mortgage loans require a lot of funds from the lender, so they must ensure you’ll be able to pay it off without significant interruptions.
How to Get Approved for a Mortgage While Switching Jobs?
If you’re considering switching jobs before buying a house, the key is to be transparent with your lender. They need to understand your employment situation and know you have a stable income. Here’s how you can do that:
Sell Your Home Before You Purchase a New One
If you’re worried about having the necessary funds to be eligible for a mortgage, consider selling your old home (if you own it). That way, you can use the equity from it as a down payment on your new property and avoid going through the hassle of reapplying for a mortgage because of your job change.
Rent a Place Until You Provide Your Lender With The First Pay Stub
If you can’t wait to purchase a new home, you can always rent a place in the meantime. Once you have proof of income from your new job, you can start the mortgage application process again and provide all the required documentation.
Purchase a House Before You Leave Your Job, Then Transfer
To avoid changing jobs during your mortgage application, purchasing a home before you leave your current position might be a good idea. This way, you can prevent employment gaps on your application and skip reapplying.
Remaining Mortgage Approval Factors
As you probably know, your employment situation is just one part of the equation regarding getting approved for a mortgage. In fact, lenders will look at other equally important factors and ask you additional questions. Therefore, you need to pay mind to:
Bigger Down Payment
The size of your down payment will play a significant role in the approval process. Namely, lenders want to see that you have skin in the game and are invested in the property you’re looking to buy. As a result, they’ll be more likely to approve your application if you have a larger downpayment.
If affording a more significant down payment isn’t in the cards for you, you might consider getting a loan.
Higher Credit Score
Unsurprisingly, one essential factor lenders look at before approving your mortgage is your credit score. Since this number gives lenders an idea of how likely you are to default on your loan, if your score is high, they might take it easier on you. Additionally, a good or excellent credit score can get you a lower interest rate on your mortgage.
Lower Debt-To-Income Ratio (DTI)
Your DTI is the percentage of your monthly income that goes towards debt payments, including your mortgage, credit cards, student loans, etc. Ideally, lenders look for a DTI of 42% or less. If you have this covered, you’ll be approved for a mortgage much easier, even if you’re switching jobs during the mortgage process.
So can you switch jobs when buying a house?
Yes, but your employment situation is just one part of the equation. If you make a logical and acceptable job change, have good credit, a low DTI, and a sizeable down payment, you’re much more likely to get approved.
But if you’re worried about your employment when purchasing a home, speak with a mortgage lender. They’ll be able to help you understand what options are available and guide you through the process.
Changing jobs during your mortgage application can delay your approval and encourage lenders to ask you for more information about your employment. Worst case scenario, your application will be rejected. However, if you make an acceptable job change, like the ones listed above, you won’t encounter any problems.
Yes, lenders will typically verify your employment before closing to ensure that you’re still employed and earning the same income as when you applied for your mortgage. Therefore, they may contact your employer directly or request pay stubs or tax returns.
If you quit your job before closing on a house, it could harm your application. Lenders may hesitate to approve your loan, so if you want to quit your job, speak to your lender first or wait until you’re approved.
Yes, you may still be able to get a mortgage. However, you’ll need to provide additional information, a high credit score, a low DTI, and a sizeable down payment to offset your recent job change.