When you submit an application for a home loan, one factor a lender will take into consideration is your employment history. A recent job change, a gap in work history, or a change in pay structure can all affect the home loan you qualify for. Lee Killen, a Branch Manager at NFM Lending, answered some questions about how your job history can affect your ability to qualify for a loan.
How can a recent job change impact a borrower’s eligibility for a home loan?
A recent job switch or position change at one’s current company can impact a Borrower’s eligibility for a home loan either positively or negatively, depending on the pay rate and type of pay being received (hourly, salary, or commission). The easiest transition is moving from a job in the same field with an increase in salary. The most detrimental transition when trying to purchase a house is moving from a salaried position, to a position with a large portion of your pay coming from commission. You will need to document two years’ history of commission or bonus income before it can be used to qualify for a home loan.
In what other ways do job history and pay structure affect mortgage eligibility?
A lender’s main responsibility when lending money is making sure the Borrower has the ability to repay. A large part of this process is verifying job and income stability. Your lender will verify a minimum of two years’ work and income history through tax returns, W2s, and pay stubs, along with a verification of employment from each employer over the last two years. Self-employed income and unreimbursed business expenses will also be reviewed, and can negatively affect your ability to qualify for a mortgage. Make sure your mortgage professional has received and reviewed this documentation prior to entering into a purchase transaction. Please note that a major change in pay structure can also affect your ability to qualify. Changing from a salaried position to a commission-based pay structure could disqualify you for a loan if the change took place within the last two years. Commission or bonus income also requires a full two-year history.
What advice do you have for someone who has switched jobs recently, or is thinking of doing so, and also wants to apply for a mortgage?
If you are thinking of switching jobs and want to qualify for a home mortgage in the near future, it is recommended that you consult with a mortgage professional who can advise you as to whether a job move will negatively affect your ability to qualify for a mortgage. If you have already changed jobs, make sure you explain the reason for the change to your mortgage professional. This will need to be addressed in the financing process. Position and income changes are the key things lenders will look at. If you are staying in the same line of work and your income is increasing, this is typically not a problem.
When you are ready to purchase a home, be sure to talk to your lender and find out how any income or job changes will affect your loan eligibility. By staying prepared and working with a reputable lender, you can avoid stress and take the steps necessary to get qualified for a mortgage. For more information, or to get started with the pre-qualification process, click here to contact Lee Killen or one of our licensed Mortgage Loan Originators!