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The Effect of Changing Jobs
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.
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