While a job change can mean variety and advancement, if you are in the process of buying a home it can complicate matters. In general, changing employment before a home purchase is acceptable to mortgage lenders, but starting a new job once your loan application is underway can make it much more difficult.
How Lenders View Employment
You might wonder why a job change would matter to your mortgage lender, especially if you will be making more money. The issue is income security. Lenders want to see that you have a stable, steady source of income to be able to repay your mortgage each month. They breathe a little easier if you have been working at the same company for at least two years, as this indicates you have a long-term track record of income.
If you have worked at your current employment for less than two years, lenders will scrutinize other factors to evaluate your risk. For example, they might look at how often you have changed jobs in the past, how long you have worked in the same field, how often you have received pay raises or promotions, and if you have had any extended periods of unemployment on your resume. They may also consider the health of your company or industry.
Changing Jobs During Mortgage Process
If you switch employment after the home loan process is underway, it causes delays at best or at worst it might prevent you from getting approved for your loan. When you take a new job, the underwriters have to start over on evaluating your loan prospects based on your new position, requiring more research to understand your new financial position. Even if you are still approved for funding, the added delay could cause your home sale may fall through if the seller does not want to wait.
And it is definitely possible that the underwriters might decide that your job change is too much of an unknown and they may deny you the loan.
Ways to Bolster Your Application
While employment history is a big part of mortgage approval, lenders do look at other factors. If the rest of your application is very strong, you’ll have a better chance of still getting funding if you change jobs. For example, having a low debt-to-income (DTI) ratio shows that any extra debts will not be a strain on making your mortgage payments. An excellent credit rating can also help a lot. The minimum score for buying a house is usually around 620 but if you have a score above 700, your attractiveness as a borrower is much higher. Additionally, a large down payment can help allay lender anxiety. The more money you put down the less of a default risk you are, and other loan issues might be able to be overlooked.
If at all possible, job changes should happen after you close on a mortgage, or a significant time before you apply. When that is not possible, you can expect delays or even loan denials. Having a strong overall application may help you still qualify for funding in some cases.
If you can help it, don't change jobs in the middle of the loan process. It complicates the loan and could possibly prevent your loan from closing.
These materials are not from HUD or FHA and were not approved by HUD or a government agency.