Two things can be really exciting and terrifying—buying a home and changing jobs.
Combine the two, and you’ve got yourself a recipe for stress…or do you? Many people assume that they can’t or shouldn’t buy a home if they’re in the middle of a career change.
Will it be less paperwork if you have a long work history with the same company where you can easily produce pay stubs that explain your pay structure? Of course it will. Does that mean you should hold off on buying a house until you have more stability? Not at all!
Whether you’re switching jobs, starting a new salaried position, have a commission-based gig, or have gaps in your employment history, there are ways to move forward in the homebuying process.
So let’s clear up some of the biggest misconceptions and assumptions about whether buying a home is right for you if your job changes during the mortgage process or if your employment history is less than stellar.
Should I Accept a New Job During the Mortgage Process?
You can, but be sure to inform your lender immediately. That’s because a mortgage lender will do a final income and employment verification just before the mortgage application process is complete. The last thing you want is to have your dream home slip through your fingers at the 11th hour.
So tell your mortgage lender everything upfront, and keep them informed of any changes in income, job titles, or dates of employment.
If you have a new job, you’ll want to provide an offer letter, a letter that confirms any changes in job titles, your most recent pay stub, and a verification of employment (VOE) letter. If you’ll be relocating for the job, you’ll also need a relocation letter from your employer.
How Does a Job Change Affect My Mortgage Application?
If you had a salaried position and you’re moving to another salaried position, it’s generally no sweat as long as the salary and industry are similar. That’s because mortgage lenders like to see that you’re stable, secure, and responsible.
However, your ability to qualify for a mortgage could be affected if your income decreases substantially. That’s because a salary reduction would impact your debt-to-income (DTI) ratio, an important calculation when buying a home.
Certain job changes during the mortgage process also make lenders nervous. They don’t generally like to see a switch from a salaried position to one that’s commission based, or a change in your pay structure where you go from being a W-2 employee to a contract employee.
Commission-based or contract workers get mortgage loans approved all the time. But when your work history and pay structure suddenly change in the middle of the mortgage application process, it shakes a lender’s confidence in your ability to repay the loan.
That’s because the new position and pay structure are untested for you. No one can predict whether you’ll knock it out of the park and make even more money than you did before—or if switching jobs will result in much lower pay and an inability to make your mortgage payment.
How Do Mortgage Lenders View Gaps in Work History?
Mortgage lenders understand that not everyone has a consistent, linear employment history from the time they turn 16. But they also know that steady employment is a good indicator that a borrower will repay their mortgage.
Most mortgage lenders require only a two-year work history, so if any gaps exist before then, you should be fine. During that two-year period, a gap of a month or two may also be overlooked, but being unemployed for six months or longer could be a red flag.
The same is true of frequent job changes or swings in income. Again, it’s all about stability.
Mortgage lenders also know that you’re human. That’s why every home loan applicant is treated on an individual basis. This gives you the opportunity to explain any gaps in employment. Maternity leave, a temporary disability, caring for a loved one, a layoff, or taking time off to go back to school are generally acceptable reasons for a gap.
Whatever the reason, you may be asked to show proof related to your employment gap. In the case of going back to school, this could come in the form of a transcript. For maternity leave, it might entail a letter from your employer.
Your mortgage application can also be made stronger if you can show proof that you never missed a rent or mortgage payment during the gap in your work history.
Can I Get a Home Loan as a Contract Employee?
You certainly can, though mortgage lenders generally like to see a two-year work history as a contract employee. Becoming a contract employee during the mortgage process, on the other hand, can cause some concern.
Contract employees need to show more documentation when applying for a mortgage, which may include 1099s from clients, most recently paid invoices, additional years of tax returns, a current balance sheet, and a profit and loss (P&L) statement, among other requirements.
What if I Change Jobs After I Close on My Mortgage?
Once your loan is funded and you’ve closed on your home, you can change jobs with no consequences. Keep in mind, though, that there’s a difference between “cleared to close” and “closed.”
If your loan is cleared to close, the mortgage lender may still want to verify income and employment. This would not be a good time to make a major career move. Also, your ability to refinance a home loan in the next couple of years could be impacted by a job change after your original loan closes.
Do Lenders Verify Your Employment During and After the Mortgage Process?
During the mortgage application process? Absolutely. Some mortgage lenders will also do a second or even third VOE after the loan has closed. This typically happens if the institution is in the middle of an audit or if your mortgage is being sold to another company.
Once your mortgage is funded and the home closes, however, the house is yours.
Whatever your employment status, APM is here to help. Give us a call today to discuss your exact financial situation and goals.