For most
people, changing employers will not really affect your ability to qualify
for a mortgage loan, especially if you are going to be earning more money.
For some homebuyers, however, the effects of changing jobs can be
disastrous to your loan application.
How
Changing Jobs Affects Buying a Home
For most
people, changing employers will not really affect your ability to qualify
for a mortgage loan. For some homebuyers, however, the effects of changing
jobs can be disastrous to your loan application.
Salaried
Employees
If you are
a salaried employee who does not earn additional income from commissions,
bonuses, or over-time, switching employers should not create a problem.
Just make sure to remain in the same line of work. Hopefully, you
will be earning a higher salary, which will help you better qualify for a
mortgage.
Hourly Employees
If your
income is based on hourly wages and you work a straight forty hours a week
without over-time, changing jobs should not create any problems.
Commissioned
Employees
If a
substantial portion of your income is derived from commissions, you should
not change jobs before buying a home. This has to do with how mortgage
lenders calculate your income. They average your commissions over the last
two years.
Changing
employers creates an uncertainty about your future earnings from
commissions. There is no track record from which to produce an average.
Even if you are selling the same type of product with essentially the same
commission structure, the underwriter cannot be certain that past earnings
will accurately reflect future earnings.
Changing
jobs would negatively impact your ability to buy a home.
Bonuses
If a
substantial portion of your income on the new job will come from bonuses,
you may want to consider delaying an employment change. Mortgage lenders
will rarely consider future bonuses as income unless you have been on the
same job for two years and have a track record of receiving those bonuses.
Then they will average your bonuses over the last two years in calculating
your income.
Changing
employers means that you do not have the two-year track record necessary
to count bonuses as income.
Part-Time
Employees
If you earn
an hourly income but rarely work forty hours a week, you should not change
jobs. There would be no way to tell how many hours you will work each week
on the new job, so no way to accurately calculate your income. If you
remain on the old job, the lender can just average your earnings.
Over-Time
Since all
employers award overtime hours differently, your overtime income cannot be
determined if you change jobs. If you stay on your present job, your
lender will give you credit for overtime income. They will determine your
overtime earnings over the last two years, then calculate a monthly
average.
Self-Employment
If you are
considering a change to self-employment before buying a new home,
don’t do it. Buy the home first.
Lenders
like to see a two-year track record of self-employment income when
approving a loan. Plus, self-employed individuals tend to include a lot of
expenses on the Schedule C of their tax returns, especially in the early
years of self-employment. While this minimizes your tax obligation to the
IRS, it also minimizes your income to qualify for a home loan.
If you are considering
changing your business from a sole proprietorship to a partnership or
corporation, you should also delay that until you purchase your new home.
