Ideally, you want to avoid going into the home-buying process when your life (including your career) is unstable. Lenders can be a fickle lot, and they tend to view longer, steadier employment histories more favorably than one that’s a little bit scattered or full of short tenures.
But, what happens if you’re presented with a golden career opportunity right in the middle of your homeownership journey? Or, what if something happens within your industry or at your company that makes changing jobs right now the only reasonable response?
The short answer is that switching jobs doesn’t necessarily mean that your mortgage application is dead in the water – but the process of actually getting a mortgage will probably get more complicated. The long answer is a little more complicated. Here’s what you need to know:
Understanding the Mortgage Approval Process: Why Job Changes Matter
Lenders evaluate several factors to determine a mortgage applicant’s eligibility for a loan, including their credit score, income, debt-to-income ratio and (of course) their employment history.
Stabile employment is a key consideration for lenders, as it reflects a borrower’s ability to make consistent mortgage payments. Typically, lenders like to see steady employment for the last two years within at least the same field, if not with the same employer. That being said, not all job changes have the same effect on your ability to qualify for a mortgage.
For example, a job change shortly before you begin the mortgage application process is less likely to impact you than a job change in the middle of the process or after your pre-approval. You could get that conversation out of the way from the start and address any concerns before you even apply. (This is not particularly uncommon, especially when people are relocating for a new job.)
Once you’re in the middle of the mortgage application or you’ve been preapproved, however, changing jobs becomes more problematic. Your lender is going to need new documentation of your income and employment once you change jobs before they can proceed with the loan. At that point, switching jobs could have either a positive or negative effect on your application – or none at all. It all depends on the circumstances.
When Could Changing Jobs Hurt Your Chances of Obtaining a Mortgage?
Lenders are looking for any “red flags” that indicate you could be headed toward financial instability. With that in mind, here are some scenarios that could set off some alarms with underwriting:
- You jump to a completely different industry: If you change fields and job titles, the bank can no longer look at your past earnings as a reliable indicator of your future earnings. Your new industry, too, can have an impact. Lenders see some industries as inherently riskier than others.
- You move to a job with commissions: You may see a commission-based job as a fantastic opportunity to make far more than you ever could have on an hourly basis, but the bank can’t average an unknown. Without a two-year history of commissions to look back on, a lender can’t predict how much you are going to earn.
- You’re on probation at the new job: If your new job comes with a probationary period, it could pose challenges during the mortgage application process. Being on probation may make lenders hesitant, as your employment status might be uncertain during this period.
- You become self-employed: Everybody loves an entrepreneur – except for mortgage lenders. If you intend to launch your own business or do contract work, you may want to wait until you go through the mortgage application process. While it’s entirely possible to get a loan when you’re self-employed, you have to be able to show the bank what you’re earning – and that’s not possible to do until you’ve filed self-employment taxes for a year or two.
Each of these situations has the potential to derail your mortgage indefinitely, so it’s better to delay these kinds of moves until you’re through closing. If that’s not possible, you may be able to rescue the mortgage application with a bigger down payment or with the use of a co-signer, but you may also simply have to wait for a while before you try again.
When Could Changing Jobs Improve Your Odds of Getting a Mortgage?
There are situations where a change in jobs can actually help you obtain a mortgage. For example, if you move to a higher-paying position with a different company in your industry, that can positively affect your debt-to-income ratio (DTI). Your debt-to-income ratio is a crucial metric that lenders use to assess your ability to manage monthly payments, so any increase in your monthly income can help you qualify for a loan more easily.
The key here is transparency. Keep your real estate professional and your lender informed about your job change and be prepared to provide details about your new employment. You should also be prepared to provide your lender with proof of your new financial situation, including:
- The offer letter from your employer that spells out your compensation
- Written verification of employment from your new employer
- Your most recent pay stubs from the new position
This will still likely slow the application process down, but the end result may be worth the wait, especially if your new financial situation allows for a better interest rate or a larger loan.
When Could Changing Jobs Make No Difference in the Loan Approval Process?
It’s entirely possible that your mid-application shift in employment won’t really impact your loan. If you change from one salaried or hourly job to another with a similar pay structure in the same field, it may not affect your application at all – beyond any delays while the bank waits on your documentation. So, for example, switching from one nursing job with a local hospital to another with a different hospital for roughly the same pay wouldn’t likely affect your loan.
So, What’s the Bottom Line on Switching Jobs When You’re House-Hunting?
Switching jobs can definitely impact the mortgage application process, but it doesn’t necessarily mean your homeownership dreams are out of reach. By understanding the factors lenders consider and taking proactive steps to mitigate potential challenges, you can still successfully navigate this mortgage maze.
