Can I get approved for a mortgage if I plan on changing employeers prior to closing?
Short Answer:
It depends, but most likely yes. Switching a job or employer is not a dead end to your mortgage. The main concern will be the type of income that you currently make vs. how you will be paid in the future. Are you currently an hourly employee moving to a salary job? Are you moving from one salaried job to another? Are you moving from hourly to fully commissioned? To make sure there isn't a problem, it's important to be transparent with your mortgage loan officer. Additional documentation like an offer letter clear of any conditions of employment might be required.
Longer Answer:
Frequently, I will have pre-approved clients call me that they have been offered their dream job. They want to take the dream job, but they don't want to jeopardize getting approved for a mortgage. The client then asks "any way for me to take this new job and still get a mortgage?"
My response is always: it depends. I need a little more information before I can say "yes or no"
Here’s a detailed look at how changing jobs can impact your mortgage approval process.
Stability is Key
Lenders love stability. During the approval process, mortgage underwriters are looking to ensure that you have a reliable source of income to make your mortgage payments. A stable employment history is a critical factor in this assessment. However, the mortgage industry understands the time of people being at one company for 15, 20, or 25 years is no more. People switching jobs is normal. When faced with a client who recently switched a job or will switch employers shortly before or after closing, an underwriter looks at these factors:
Factors Lenders Consider
- Type of Job Change:
- Same Industry: If you are moving to a similar role within the same industry, lenders may view this as a positive or neutral change. It shows that you have transferable skills and are likely to maintain a steady income.
- Different Industry: Switching to a completely different industry can raise red flags. Lenders may worry about your ability to succeed in a new field, which could impact your income stability. In this situation, a lender might ask for a letter of explanation on how this new job is similar to your old job.
- Employment Terms:
- Full-Time vs. Part-Time: Full-time positions are generally viewed more favorably than part-time or contract roles. A full-time job indicates a more stable income. However, a client who has a history of part-time jobs may show a history of stable income. For example, I had a client who was a part-time football coach for over 5 years. We were able to use his part-time income due to his history.
- Permanent vs. Temporary/Contract: Permanent positions are preferred over temporary or probationary roles. Lenders want to see long-term employment prospects. With contract roles, a lender might want to see a 2 or 3-year contract before they may approve the mortgage without the client having a history of contract roles. For example, a traveling nurse who has worked at multiple different hospitals over 3 years will have an easier time being approved than one who has only a year of employment in the field.
- Income Level:
- Salary Increase: If the new job offers a higher salary, it could be seen as a positive change.
- Salary Decrease: A decrease in salary can be a cause for concern. It may affect your debt-to-income ratio, which is a crucial factor in mortgage approval.
- Type of Income
- Currently Salaried Employee to New Salaried Position: Almost all the time this will not cause a problem for mortgage approval.
- Current Hourly Employee to New Salaried Position: Similarly to salaried to salaried, mortgage approval should not be affected by this change in employment and income
- Currently Salaried Employee to New Hourly Position: This could cause a problem; unless the new employer guarantees a certain amount of hours weekly. For example, some companies have employees as "hourly employees" but guarantee 40 hours a week of work.
- Currently Salaried Employee to New Commission Position: Without a 2-year history of employment in a commission income, this new income would not be allowed to be used for a mortgage approval.
- Overtime or Bonus income: Without a 2-year history of showing overtime or bonus income, neither of these incomes would be allowed to be used for mortgage approval. One exception, some first responders or law enforcement employees have built-in guaranteed overtime income given to all employees in those positions. In this situation, some lenders might allow this overtime income to be used with confirmation from the employer of the guarantee nature of the income.
Communication is Crucial
Transparency with your lender is essential. If you plan to change jobs, discuss it with your mortgage loan officer as early as possible. They can guide how the job change might impact your mortgage approval and suggest steps to mitigate any potential issues.
Documentation Requirements
Be prepared to provide additional documentation if you change jobs. This may include:
- Offer letter from your new employer
- Employment contract
- Recent pay stubs
- Paystubs from your previous employer
- Verification of employment from your new employer
Conclusion
While changing jobs before closing on a mortgage can introduce some complexities, it doesn’t necessarily mean you won’t get approved. The key is to maintain open communication with your mortgage loan officer before making the change and provide all necessary documentation to demonstrate your income stability.
Have additional questions about switching jobs before buying your new home, I am happy to answer them. Reach out to me at teamjd@mainstreethl.com
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This blog is for informational purposes only. Make sure you understand the features associated with the loan program you choose, and that it meets your unique financial needs. Subject to Debt-to-Income and Underwriting requirements. This is not a credit decision or a commitment to lend. Eligibility is subject to completion of an application and verification of home ownership, occupancy, title, income, employment, credit, home value, collateral, and underwriting requirements. Not all programs are available in all areas. Offers may vary and are subject to change at any time without notice. Should you have any questions about the information provided, please contact me.
