There are many aspects to a mortgage application. A lender does not qualify you on the basis of credit alone or just on your income. They have to look at the whole picture. They measure your level of risk based on how everything comes together. Sometimes a borrower with a lower than average credit score might still be able to get a loan because his income his high and debts are low. Another example is a borrower who has great credit but a slightly higher than average debt ratio. However, there are certain aspects that make a loan application riskier and job stability is one of them. Switching jobs may negatively impact your chances to get a mortgage.
Why Does Job History Matter?
Generally, lenders want to see a 2-year history at your job. They consider this stable and consistent. They can look back at the last two years to see how your income changed throughout that time. They can also gauge how your future income will shape up based on your past. If you have multiple jobs throughout the last few years, lenders have a harder time figuring out your risk level.
Lenders often look at people who “job hop” as risky borrowers. They wonder why you change jobs so often and how predictable your income really is because of it. Without paperwork to show your past income and job stability, a lender has to wonder what the future will hold. Do they want to take the risk on you despite your inconsistency? The answer will vary by lender.
Show a Reason for the Job Changes
The best way to have a lender accept your job change is to have a solid reason for it. A few good examples include:
- You changed jobs to take a higher position with better pay. If the job is in the same industry, it helps your case even further. The lender can see that you have the experience in the industry based on your past job and that you worked your way up the ladder in order to better your financial status.
- You went back to school to change jobs. Maybe you decided your current job is not what you want to do for the rest of your life. If you went back to school or underwent any other type of official training and then changed jobs, the lender can see your efforts in changing jobs. They will likely determine that it was not a forced or haphazard decision, but rather a very methodical one on your part.
- You received a promotion within the same company. Working for the same company in a different position may not seem risky, but it is still a job change. Showing the higher position you have and the increase in your salary can help the lender understand and accept the job change.
The more proof you have to show the lender regarding your job change, the better. Lenders usually like to see the income prior to the job change as well as after. This way they can determine how your finances are affected. Some lenders may take an average of the incomes if your new job is too new to have any predictability. Other lenders might take your word for it or that of your employer that your job is stable and accept the higher income.
The Paperwork Required for Switching Jobs
No two lenders will have the same requirements when it comes to switching jobs. Some will take it at face value and use your most current paystubs to determine your income. Other lenders will want to see more concrete proof in the form of any of the following:
- Contracts you sign with the new employer
- Paystubs you receive
- Contact information for the new employer
- Offer letters you receive
The more paperwork you have, the better off you will be with the lender. Keep in mind, if your pay structure will change dramatically, such as going from salary to commission, you might have to wait a little longer to apply for the mortgage. Salary is a more consistent income that lenders can easily work with even when switching jobs. Going from salary to commission, however, is a whole new world. The lender will likely want to see proof that you can handle the commission income and still make your monthly payments on time.
Different Lenders Have Different Requirements
You should also keep in mind that different lenders have different requirements. Some are just fine with switching jobs soon before your mortgage application and others are not. If you find a lender who does not accept the new job until you have been there for at least two years, shop with other lenders. Every lender has different programs, especially those who are able to keep the loans on their own books. These portfolio loans are not sold to the secondary market, so the lender can make up their own rules regarding what they have to offer.
The good news is that switching jobs does not have to be the deal breaker it used to be when applying for a mortgage. Many lenders understand today’s need for change in employment. As long as your job change is within the same industry or makes sense in the eyes of the lender, you can make it work. If, however, you change from an employee to a self-employed borrower or you change from salary to commission, you might have a longer wait ahead of you. Let the lender tell you what to expect and how to go about the process. The more proof you can provide regarding the change and how it will affect your finances, the better off you will be in the long run.
The most important thing you can do is be upfront and honest with your lender. The more information you provide, the more they can help you find the right program for your situation.