By Doug Goelz, Mortgage Services
While you are looking for a home to buy, you may have new job opportunities, or job changes may be forced upon you. Ideally, lenders like to see steady income from the same source(s) before giving a loan, but a recent or upcoming job change doesn’t prevent you necessarily from getting financing. Here are several common job situations that arise, and their impact on financing:
- “I recently switched jobs in my company.” Usually a job change in the same company is not a problem. Lenders look at your current salary, so if you got a raise with the new job, you benefit. However, if the new job doesn’t pay the commission you used to earn, and it is obvious you will not earn a commission (e.g., if your job title changed from “Account Executive” to “Director of Personnel”), the lender probably will count ONLY your salary and not look at recent past commissions earned.
- “I just started with a new company in the same line of work I have always done. I am going to earn big bonuses and commissions.” If you are on a new job at a new employer, lenders generally will count your new salary. Lenders usually want you to have pay stubs for 4 weeks before they will consider the new job income. However, even if your new job has the potential for a large bonus or commission, most lenders won’t count the potential future income. In general, lenders want to see a two year history of bonuses from your current employer before they will count bonus income. Also, lenders annualize commission income from commission-paying jobs if you have been in the job for less than two years. This can be disappointing for borrowers who have ramped up their commission income as they got established in their new jobs. The leaner, beginning months in a new job can reduce the average income lenders will count.
- “I am taking a new job at a different company, but I won’t start for two weeks, and I need financing NOW. I have my offer letter.” Some lenders will accept salary income from an offer letter with one pay stub and/or verification from the new company that you are on the job. However, if the offer letter is explicit about a probationary period before you become a permanent employee, lenders often will require the borrower to be on the job past the probationary period before counting the income for the job.
- “I am taking a new job at a different company, but I am taking some time off and won’t start for two months. I need financing NOW. I have my offer letter.” If you are not working when your loan is getting ready to close, or soon thereafter, most lenders will not approve your loan.
- “I was self-employed, but I just took a salaried position with a company.” Once you are on the new job and your employment can be verified by the company or with paystubs, the lender will count your new salary.
- “I was salaried, but I struck out on my own and am now self-employed. I am doing the same type of work and even have the same clients. I will make a lot more money working for myself.” This is a common scenario for attorneys and accountants who work for firms, but then decide to open their own solo practice. In general, lenders will not count income from self-employment until you have 2 years of filed tax returns. Then, the lender will average the two years of income. If you are in start-up mode and not making much (or any) income in year 1, you may have to have 3 years of filed tax returns before you can show enough income to get a loan.
- “I was salaried, but became a consultant through an agency, and am doing the same kind of work for my company. I get a regular paycheck.” This kind of job change can be tricky. If you are being paid an hourly rate through your new agency, but you are only paid while you have a gig, lenders may treat you as self-employed and require a two year history of self-employment income before counting any income from your new job. Lenders consider the type of work, the amount of pay, and the agency for whom you work when deciding how to count your income.
- “I am salaried and have a side business of my own.” As long as you have pay stubs for the salaried job and two years of filed tax returns for the side business, lenders will count income from both sources.
- “I am fed up with my job. My loan is approved and escrow is closing next week. I am quitting today.” DON’T! Lenders may verify your employment as late as the day they fund a loan. If your loan is not closed, you suddenly are not employed (or you are starting a new job in a week), and the lender finds out, they will not fund the loan.
- “I made a big career change recently and I am getting paid hourly by my employer in my new line of work.” Lenders usually want to see a history of earnings in the same line of work before they will count the income. At a minimum, lenders often will require a detailed letter of explanation of the career change, including the borrower’s motivation for the change and likelihood of success in the new job.
- “I was unemployed for 2 years, but just got a new salaried job.” Lenders can be tough on borrowers with long periods of “unexplained” unemployment (a bad economy and job market isn’t a good enough explanation for most lenders). Lenders probably will require a letter of explanation about why the unemployment was so long, its impact, and the potential for continued employment. Lenders are probably more lenient on a recently employed borrower who had decided to be a stay-at-home parent for the 2 previous years than the recently-employed borrower who got laid off and then looked for a job unsuccessfully for the previous for 2 years.
Employment changes happen, and you certainly want to take advantage of career opportunities. However, if you are on the verge or in the middle of financing, speak with your lender before making any voluntary changes in your employment.
Questions? Feel free to get in touch with me at 415-730-4665 or [email protected]
