Buy vs Rent: Making the Right Choice Hey there! So, you're caught in the age-old…
One of the key factors in getting approved for a mortgage is demonstrating financial stability. So it’s no wonder that people who’ve changed jobs shortly before starting—or even during—the process of buying a home often worry that a career change will hurt their chances of getting a loan. Being in a transitional state is no reason to panic: Getting a mortgage when changing jobs is feasible with a little foreknowledge and some solid preparation.
Our YouTube show, “The New Way Home,” covers this topic in depth in Episode 11. As with any home purchase or refinance, you should turn to a mortgage professional for advice on your specific situation. Our team at New Way Mortgage is here to help!
How to Qualify for a Mortgage
Before getting into the specifics of getting a mortgage while changing jobs, it’s worth covering the general qualifying factors borrowers will need to address to obtain a mortgage—often referred to as the 3C’s of getting a mortgage:
- Capacity: Your ability to repay the loan—income and assets. This includes salaries, bonuses, commissions, self-employment income, government benefits, retirement and investment income, checking, savings, and investment and retirement accounts.
- Collateral: Either the home you’re purchasing or the home you currently own and are looking to refinance.
- Credit: Your credit score and history.
How a Job Change Can Impact a Loan
The most direct way a job change will affect the details of your loan is if it entails a major change in salary, or if you are moving from a salaried position to a commission or self-employment. If you’re changing jobs for an increase in salary, good for you. That shouldn’t impact your loan much, especially if there is a reasonable explanation. You’ll just want to make sure there is no significant gap in time or pay between the two jobs.
If your new job comes with lower pay, is a move from salaried to commission, is in a different industry, or includes any other factors that indicate instability, then a lender might consider this a high risk. That’s right: Even if your pay potential increases, the change could still be viewed as risky.
A borrower getting ready to buy a home or refinance an existing mortgage would not want to make the move from salaried to commission or salaried to self-employment before or during the mortgage process.
How Changing the Type of Income May Impact Your Loan
As the freelance and gig sectors of the economy continue to expand, it’s become easier for people to make a living without ever working full-time for a single employer. In some industries, people can make even more working on contracts than they could as a full-time employee.
That said, mortgage lenders think in terms of risk. Someone who makes a sizable income one year from contract or freelance work is not guaranteed to make as much the next year. A homebuyer working as a freelancer or contractor may have to jump through a few more hoops to get a mortgage than a salaried employee.
Typically mortgage lenders want to see two years of profitable self-employment income to satisfy the capacity qualification.
Documentation Your Lender May Ask For
Whether your new job is a full-time position or a freelance one, your lender will want to see it on paper to reduce their risk. Your lender may want to see more, depending on your situation, but it will want to see these at the very least:
- Most recent pay stubs: Unless your job is extremely new, you should have at least one pay stub. Most lenders will also request 30 days of pay stubs from your previous employer, along with the past two years of W-2s, to determine your average income.
- Offer letter: If you haven’t started your new position—or haven’t been there long enough to receive a pay stub—your lender will want to see your offer letter. (The lender may want to see it even if you do have a pay stub, to verify your new salary.) Offer letters are often the most important part of getting a mortgage while changing jobs, as many lenders will base their willingness to back your home purchase on an offer letter. Such loans are often referred to as “offer letter mortgages.”
- Title change letter: For anyone in the slightly less complicated scenario of moving to a new job within the same company while applying for a mortgage, the lender may still want to see a copy of the document outlining your change of position and salary change, if applicable.
- Verification of employment: A VOE is a formal confirmation from your employer that you’re currently working for them. Your lender will likely perform a written and verbal verification of employment during the mortgage process.
- Commissioned employees: Moving from a salaried position to a commission-only position will require two years of tax returns, along with an offer letter to confirm your earnings potential. Your lender could ask for additional documentation if there is concern that your income may drop.
Getting a Mortgage While Changing Employment
The bottom line here is that, YES, you can still get a mortgage while changing jobs—but you will need to do some planning. Make sure you meet with the crew at New Way Mortgage early on in the mortgage process to review your scenario and avoid any impact to your loan.