Your job history is important to your mortgage application, but what happens if you change jobs during the loan process?
Will you lose your loan approval and be unable to buy a house?
It’s not an automatic denial, but the wrong situation could put a wrench in your plans.
Here’s how to handle changing jobs while buying a home.
Can you Change Jobs While Buying a Home?
It’s a tricky situation.
In some situations, it’s not an issue, and you can easily switch and not skip a beat because the change is minor or improves your financial situation.
In other situations, though, it can put a delay or even cancel your home loan no matter your lender.
Always talk to your loan officer, no matter how good your qualifying factors are or how far along in the home-buying process.
Find out if it’s a good idea to switch jobs or let your loan officer know that a job change is coming.
Don’t assume that your loan officer knows this information.
Some lenders won’t allow it, and certain loan programs have specific guidelines and requirements related job changes.
A good example of a real situation that happened:
A couple in the military was buying a home that was being newly built.
They applied in September for a VA home loan and, the house wasn’t going to be ready to move into until the following year, in July.
When the couple applied, they were in the military. They got pre-approved, and the process was moving along.
By the time July came around, they both were out of the military. One was already working at another job, while the other was unemployed and looking for a job.
So, what happened?
The couple no longer qualified, and the loan was denied. The monthly income had changed, causing their debt-to-income ratios to rise.
What could have prevented the loan denial?
They never told their loan officer that their employment with the military was ending.
They never said anything about getting a new job or being out of work.
If they had communicated this information with their loan officer, they could have devised a plan to prevent the loan denial.
Read: How a Mortgage Loan Officer can Help you from Start to Finish
Acceptable Job Changes
Some job changes have little to no impact on your mortgage application, including:
- You found a higher-paying job in the same industry – If you already have an established history in the industry and found a job that pays more, mortgage lenders will welcome the idea.
- You have a chance to advance – If you’ve been in your industry for several years and have an opportunity to level up, make more money and take a better job, it usually works well during the mortgage underwriting process.
- You are doing a VA Streamline Refinance. Although, not related to purchasing a home, we thought this would be good for you to know. A VA streamline refinance doesn’t require any income documentation or verification.
The key to being allowed to change jobs while buying a home is showing stability.
It usually works if your change is minor or to improve your situation.
But, if it’s something without a long history or there are too many unknown factors, it might not work, and lenders may make you wait until you have a longer history at the new job to get a mortgage.
Situations that Would Affect your Loan Approval
Some situations could cause your mortgage to be put on hold or even denied if you change jobs while buying a home.
Here are the most common situations:
- Changing payment structure – If you currently earn a salary and take on a new job that pays hourly or on commission, it could hurt your chances of loan approval because the income isn’t as steady.
- Changing from a W-2 employee to a 1099 contractor – Losing your employment status can cause you to lose your loan approval. Independent contractors are self-employed, and self-employed borrowers have many different requirements to meet, including at least a 2-year history of self-employment. Check out: Home Loans for Self Employed
- Changing industries – Changing jobs isn’t always bad, but changing industries mid-mortgage process can ruin your approval. Lenders want a solid history of you in the same industry to prove your income is stable and reliable.
What to do if you Change Jobs While Buying a Home
If you change jobs while buying a home for an acceptable reason, be prepared with proper documentation to show you’re a reasonable risk.
Your lender will need proof of the job change and what it entails. This could include many different forms, such as:
- Offer letter – If you were offered a higher paying job at a new company, provide a copy of the letter to the lender. The letter should state your new position, start date, and salary. If your job includes bonus or commission pay, it should state that too.
- Title change letter – If you’re staying at the same company, but changing titles, ask your supervisor to write a letter providing the evidence of the job change. A letter on your employer’s letterhead should be enough to prove the new position.
- Current paystub – If you’ve already changed jobs and already received a paycheck, provide the loan officer with a new paystub. If you haven’t received one yet, you’ll need one before you can close on the loan.
- Verification of Employment – Your lender will likely need to verify the new job. They can do this with a written Verification of Employment.
Factors that Offset the Risk of Changing Jobs
If you change jobs while buying a house, it works best if you have other ‘good qualifying factors.’
These factors show lenders you are a reasonable risk and will pay your bills even with the new job.
These factors include:
Great credit – The higher your credit score is the less risk of default you pose to a lender. If you have a higher credit score than the minimum required, you reduce your risk of default. Try aiming for a credit score of 700+ for the best outcome.
Low debt-to-income ratio – The fewer debts you have outstanding, the less risk you pose to a lender.
Each loan program has a maximum DTI, but you have more flexibility if your debt-to-income ratio is much lower.
In other words, it’s not as detrimental to change jobs if you don’t have a lot of outstanding debts versus having a ton of debt and unstable income.
A large down payment – If you can put more money down on the home, it’s a better option.
It shows you’re invested in the home and will do what it takes to make your payments even if your income changes.
Ideally, it would be best if you didn’t change jobs while buying a house.
Keeping the same position with a solid history ensures you can close your loan on time.
But life happens, and sometimes you have to change to make a change, or an opportunity arises that you can’t pass up.
If that happens, work closely with your loan officer.
They are the key to communicating with underwriters and telling you what you can and can’t do.
If all the pieces come together, changing jobs won’t affect your mortgage process, but provide all the details to your loan officer to ensure everyone is on the same page.
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