How Changing Jobs Affect Your Mortgage Application

A job change during the mortgage application process could make things more difficult. This is especially true if your new position pays on commission or has flexible hours. Generally speaking, though, mortgage lenders value stability. Because of this, it's critical to keep your employment moving as little as possible and to only do so when it will improve your financial security.

Positive job transitions

Since a mortgage loan is a significant commitment, stability is a factor that lenders consider when determining a homebuyer's capacity for monthly payments. However, this does not imply that changing jobs is always a deal-breaker. Certain employment changes may even help your mortgage application. For example, your mortgage won't likely be impacted if you switch from a salaried job to one in the same field that pays much more, as long as the new salary is within the required income range set by your lender. However, switching from a salaried position to one that is commission- or freelance-based might complicate matters. This is due to the possibility that an abrupt shift in income could cause lenders to become concerned and doubt your capacity to make mortgage payments. This is particularly true if the new source of money is erratic. For this reason, before applying for a mortgage, it's crucial to discuss your big professional transition with your lender. They'll probably advise you to postpone making the adjustment until after closing.

A bad change in employment

Lenders may see a job switch as dangerous if it occurs soon before the mortgage application is submitted. This is a result of the uncertainty surrounding your employment status and income level. This can make the lender doubt your ability to consistently make mortgage payments. Red flags may also arise when moving from W-2 employment to a contract role or a completely new business. Borrowers with long-term agreements, as opposed to those on probation or short-term contracts, are preferred by lenders. You can lessen the effect of a job change on your mortgage application if you plan ahead. After changing jobs, you should ideally wait at least two years before applying for a mortgage. Remaining in the same industry as one's previous career is likewise a smart move. A reliable, constant job with a consistent salary and industry will be preferred by lenders. This will lessen the likelihood of a rejection. You can also help the underwriters feel more confident that you will be able to make your mortgage payments by providing a compelling letter of explanation.

Abrupt Changes in Employment

Lenders may become suspicious of a job change that occurs just before or during the mortgage procedure. They require proof of steady work for a minimum of two years. They will typically consider a job change if it is in the same field as their current position, but not if it is entirely unrelated. For example, lenders will be quite concerned if you are moving from an IT role to a hairdressing post. Prior to granting you a mortgage, they will want to see your employment history in the hairdressing profession. Additionally, they object to the transition from salary to commission- or performance-based employment. To ensure that you can maintain it, they will want to see a consistent track record of generating commission income. A letter of explanation could allay the lender's worries if you plan to make this kind of change.

Frequent Changes in Employment

Frequently changing employment may affect your eligibility for a mortgage loan. In order to make sure you can afford the monthly payments associated with your new house, lenders prefer to see solid work and income. But you can change jobs throughout the mortgage application process, and it won't hurt your chances of getting approved. This is especially true if the new job pays the same or more as the previous one and is in the same industry. Your application may be more challenging if you switch to a new pay type, such as commission, overtime, or bonus income, since lenders are unable to average out these kinds of jobs. Furthermore, leaving your current industry to enter a completely new one is a warning sign that raises questions about your stability and ability to make mortgage payments. Inform your lender in advance of any intended work changes during the pre-approval phase of your mortgage loan. They may advise you on the paperwork you'll need to provide and how your new employment may affect your ability to qualify for a home loan.