But when it comes to getting a conventional mortgage, new isn’t always better. That is, when it comes to starting a new job during the process.
In fact, it can potentially complicate the process.
When you apply for a mortgage, the lender wants to see your recent job history because it lets them assess your job stability, and more importantly, it helps them calculate the amount of money you’ll qualify for based on your income.
Making a career change around the same time that you’re applying for a mortgage may make lenders question whether you’re still a good risk. After all, if you don’t have a history with your new job, the lender will need some reassurance that the job move was a good move for your career and your finances.
Luckily, there are a handful of ways to give yourself the best shot at getting a mortgage with a new job.
1. Show a History of Satisfactory Income
A mortgage application is like being on “Shark Tank.” You’re working all the angles on your presentation to get a lender to believe in you and your finances enough to invest.
One of the best ways to win lenders over is by showing them that your change of work won’t change your ability to pay off your mortgage. If you make a drastic career change – and we’re talking “becoming a children’s book author after 10 years of gainful employment as a business analyst” change – you’re not necessarily out of luck in that situation. Talk to your lender EARLY in the process to make sure they’re aware of your recent change.
2. Be Ready to Explain Your Career Change
Some scenarios may make lenders question whether you’re a good risk for a mortgage.
Lenders are most concerned with how your career move will impact your ability to make your monthly mortgage payments for years to come.
Switching from a salary to a commission
What are the two biggest things a lender wants to see? Stability and consistency.
Nothing says predictable like a salary. It lets the lender know how much money you pull in every month.
If you get paid by commission at your new job, it could raise a red flag for lenders. Without a history of income based on commission, it will be difficult for the lender to estimate how much money you’ll make each month.
To justify the move, you’ll have to demonstrate that moving from a salaried position to a job that pays commission will improve your earning potential and future career prospects.
Drastic or constant changes will also set off alarms for lenders.
If your career change is part of a pattern of job-hopping, the lender may question the stability of your income.
If this scenario applies to you, you’ll need to be prepared to explain that your job switch is warranted.
An end date on your new position
Given the average length of a home loan (typically 15 – 30 years), lenders want to feel confident that you’ll be able to make your monthly mortgage payments for the life of the loan.
If your new position has a predetermined end date, it will be harder for you to get a loan approval unless you can show the lender that the short-term position comes with long-term gains.
Starting your own business
Becoming an entrepreneur won’t prevent you from getting a mortgage in the long term – but it can in the short term.
Lenders want to see the financial history of a borrower’s business over the past 1 – 2 years. If you are recently self-employed, you may be asked to provide more information about your income history to your lender.
If your career path makes it harder to get approved for a conventional loan, a Federal Housing Administration (FHA) loan or Department of Veterans Affairs (VA) loan may be possible.
3. Respect Your Lender
No one likes to get blindsided. As a general rule, being transparent and honest with people will typically yield the best results. And that applies to being upfront about switching jobs during the mortgage process, too.
If you changed jobs while applying for a home loan, talk to your real estate agent and your loan officer as soon as possible. Sharing this information allows them to make any necessary adjustments to your loan application and determine what additional paperwork you may need to provide before escrow or closing.
4. Don’t Go It Alone: Ask Your New Employer for Help
Providing proof of your job change can be a shared responsibility. Your employer can confirm your position and pay with a verification of employment (VOE) form. You can likely get this document from your human resources department.
Beyond the VOE, HR can also get you a copy of your job offer letter, paystubs and any W-2 forms – all great tools in your quest to get a home loan.
Moving out of state for a new job, and you need a new home? Ask your employer if they can provide you with a relocation specialist as a part of your relocation package.
Relocation specialists are trained professionals who can help you navigate the home buying process and connect you with a real estate agent and a mortgage broker. Having these resources can help you find a sympathetic lender and help you make your case with less stress.
5. Money Talks: Make a Larger Down Payment
A mortgage lender’s goal during the loan application process is to establish that you have the financial resources to pay back the loan they give you.
If your new job is in a different field or you accepted less money to escape a less-than-ideal work environment, you may have to make up for those circumstances during the mortgage application process.
One of the best ways to do that is by putting more money down at closing. This accomplishes two things:
- Increases your home equity and investment in your new home right from the start
- Lowers the principal loan amount — the less money a lender has to give you, the less of a risk they are taking on and the lower payments you’ll need to make each month
As an added bonus, if you can responsibly make a down payment of 20% or more, you can avoid paying for mortgage insurance — which can cost around 1% of the total annual loan amount.
Increasing your down payment will decrease your mortgage rate and potentially save you thousands of dollars over the lifetime of the loan.
6. Keep Your Credit Consistent
Last, but certainly not least, are two of the most important factors that come into play when you apply for a mortgage: your credit score and your debt-to-income (DTI) ratio.
A high credit score signals to the lender that you have a history of repaying debt in full and on time. Your DTI allows a lender to determine how much disposable monthly income you have by calculating what percent of your income goes toward paying down your debts.
Your new job is an unknown entity to the lender. But a high credit score and a DTI of 36% or less can help reassure lenders and improve your chances of getting approved for a mortgage.
History Is Key With a New J-O-B
Mortgage lenders aim to identify patterns in your work and financial history that allow them to better predict your ability to pay back a loan.
Having a clear and steadily improving work history, coupled with strong finances, will give you the best chance of getting a home loan.
It just comes down to proving that you’re a good risk – no matter where your career journey takes you.