Changing Jobs Before Getting a Mortgage? The Good and the Bad
Mortgages can put you in hundreds of thousands of dollars of debt and involve a rigorous application process. Your lender will look at every aspect of your financial life to make sure that you can pay back the loan.
Of course, your mortgage lender will want to look at your employment history to determine how steady your income is.
If you don’t have a consistent source of income, the lender will wonder how you plan to pay the loan.
If you’re applying for a mortgage and considering a job change, being concerned makes sense.
There’s a chance that the job change could affect your application.
Find out how a job change can affect your mortgage application and what you can do to stay ahead of the curve.
Why You Should be Concerned
It’s understandable that you would be concerned about changing your job before getting a mortgage.
When you’re paying a mortgage you have a large bill to pay each month. If you don’t have steady employment, you’ll have trouble paying the bill each month.
Changing jobs means going from something familiar to something new and possibly different than what you’re used to.
That can be a very stressful experience, especially with the pressure of bills to pay.
Beyond the pressure, lenders look closely at employment history when considering a loan application. If you’ve bounced from job to job, that won’t look good on your application.
If instead, you’ve shown a slow, steady progression through your career, that looks good for you.
When the Job Change is Good
Lenders are primarily concerned with whether they’ll get their money back.
So long as you make your monthly payment, your mortgage lender will be happy, whether or not your career has changed drastically from when you applied for the loan.
If you can significantly increase your income by changing careers, that can be a good thing when it comes time to apply for a loan.
The amount you make each year will directly impact the amount that a bank is willing to lend to you.
Additionally, increasing your income will reduce your debt-to-income ratio.
This ratio can be found by dividing the sum of all of your debts by your annual income.
The lower this ratio is, the happier lenders will be because it means you have more cash to pay off a new loan. This can significantly improve your chances of getting approved. It will also help you secure a lower interest rate.
Show career progression
If you’re making an upward move, lenders will be more understanding of that than if you were simply moving to the same job at a new company.
It’s also better to show progression within a single career path than it is to move into an entirely new field.
Especially if you’re staying with the same company, moving to a new job with more responsibilities and higher pay will look good to lenders and get you a better deal on a loan.
When a New Job is Bad
If you make a major career change right before applying for a mortgage, that will give lenders pause.
Put yourself in a lender’s shoes.
Someone who used to have a good in finance has decided to move into a job in information technology. You’d probably wonder why the person is making a career change.
Did they have trouble succeeding at their old job? Are they having a mid-life crisis and can they be trusted to make loan payments? Do they know enough about IT to succeed in this new career?
There are many questions for a lender to ask before offering someone hundreds of thousands of dollars.
Lenders like certainty and a big career change gives them anything but that.
If you have a history of moving from job to job in a short period of time, lenders will be concerned about your ability to pay off a mortgage.
The lender won’t know whether you’ll be able to hold on to your new job and whether you’ll be able to find a new job if you can’t.
As mentioned before, lenders like certainty. Seeing a patchwork job history may mean uncertainty.
Lenders want applicants who have had a steady job at the same company for a few years or at least someone who has a history of sticking with jobs for the long-haul.
What You Should Do
If you do decide to change jobs before you apply for a mortgage, here are the things that you should do.
Keep the lender informed
The most important thing you can do when you’re applying for a mortgage is to keep your lender informed of any changes in your financial life.
This includes keeping the lender informed of changes in your employment.
Lenders will do a deep dive into your finances when considering your mortgage application.
If you go to your lender and explain that you’re going to be changing jobs, that will look good for you. If the lender finds out about the change without your input, that could raise a red flag.
Make sure to explain why you’re changing jobs, why it is a good thing, and provide any documentation about the change that the lender requests.
Keep the application process moving
Once you’ve started the application process, move fast and do everything you can to get approved quickly.
This means you need to stay one step ahead of the bank. Try to anticipate things that the bank will need.
Have copies of your tax returns, pay stubs, confirmation of employment, or offer letter from your new employer, and provide it upfront with your application.
If the lender contacts you to ask for more information, provide it as quickly as possible. The last thing that you want to do is to get part of the way through applying for a mortgage, just to get denied because of your job change.
Once your loan is approved, your lender won’t be looking as closely at your situation and so you can worry less.
Get recommendation letter from the new employer
If you’re changing jobs in the middle of your loan application, consider asking your new employer for a letter of recommendation.
This letter could be something as simple as a letter stating that your employment is secure and you have an annual income of a specific amount.
It could also be something more personalized, explaining why the employer decided to hire you and why they’re excited to work with you.
A lender’s biggest concern surrounding a job change is that it has no way of knowing why you’re changing jobs.
It also has no way of knowing how secure your new job will be.
For all the lender knows, you could have been fired for poor performance at your previous job, and have no intention of working harder at the new one.
Having something from your new employer that shows that they think you’ll be a good fit at the company can assuage those fears.
Delay career change
Probably the easiest thing to do is to simply avoid making any career moves until after you get your mortgage.
Once you’ve gotten your mortgage, the lender is committed. It cannot take the money back once you’ve spent it, and can’t foreclose on your house unless you default on the loan.
Even if you lose your job and don’t work at all, the bank can’t do anything until you start missing payments.
If you’re considering a career change, but want to buy a house, buy the house first if you can.
Once you’ve gotten your loan, you can make career moves. Just make sure that you have enough money to keep paying your mortgage bill if your career change does not pan out.
Defaulting on a mortgage will not only ruin your credit but could cost you your home, leaving you without a place to live.
Applying for a mortgage is a long and daunting process and lenders will investigate your financial life throughout the process.
One thing that could raise a red flag for the lender is if you change your job in the middle of the application process.
Follow these tips, or delay your career change until after you get your mortgage to maximize your chances of approval.