You may be changing jobs to increase pay, get better benefits, or even embark on a new career path. If you’re starting a new position with a higher salary, this added income can be helpful. It could make it easier to qualify for a mortgage or save for a down payment. Though low and no down payment mortgages exist, putting down a larger amount, if you’re able, may help you secure a more competitive interest rate.
To qualify for a mortgage, you’ll usually need a steady employment history. A lender needs this information to help determine a stable amount of earnings they’ll use to figure out how much you can afford to pay on a monthly mortgage. This is intended to protect you as a borrower, helping to keep you in a comfortable range where you can afford food, utilities, your mortgage, and other monthly expenses.
Does this mean that if you change jobs, you’ll no longer qualify for a mortgage? Not necessarily. Working for a new employer doesn’t always adversely impact your chance of getting a loan.
When you apply for a mortgage:
- Your Loan Officer will ask for paperwork documenting why you changed jobs, your employment contract at the new job, and other related information.
- This will give them a picture of how your employment history and pay looks for the past two years.
- If you’re salaried and have moved to a job that shows you’re advancing in your industry, or if you’ve moved to a position in the same industry with a pay structure that resembles your previous job, this will reflect positively on you as a borrower.
Great news: You can get pre-approved* for your mortgage from anywhere. Connect with a local Academy Loan Officer.
A lender looks at your income to determine how stable it is and, to some degree, predict the future. W-2 income is regarded as highly stable. Other income sources, such as those from a 1099, may be viewed as unstable. 1099 income might help to increase your monthly cash flow, but it may not influence how much you can borrow.
Here’s an example:
- Let’s say you have a stable, salaried job, and you’ve been there for two years or more. You also recently picked up some freelancing clients. This freelancing income is considered variable. Your Loan Officer can’t guarantee how long it will continue. This means that it isn’t likely to impact the amount of mortgage you qualify for.
- However, if you have a two-year history showing that this extra income is steady, there’s a possibility that it may be considered. This will vary from lender to lender. As always, it’s helpful to consult with a Loan Officer about the unique details of your situation.
- Many times, moving from a salaried to a commission-based or contract pay structure can cause the most problems. Changing from a steady to a seemingly unpredictable income source without a two-year history and/or switching career fields may make it harder to qualify for a mortgage.
If a great opportunity falls in your lap, it’s important to talk to your Loan Officer as soon as possible. In other cases where changing jobs may be inevitable, your Loan Officer can guide you through any hurdles this may create. Homebuyers who are relocating might need to weigh decisions like buying a home in a new city before starting a new job or securing a short-term rental; your Loan Officer can help you explore your options.
Most often, you’re better off not switching jobs during the loan process if you can avoid it. A job change will require your lender to re-underwrite your loan, increasing the time it takes to process your mortgage. This tends to make getting a mortgage more complex than it has to be.
If your loan financing falls through, try to hang in there. Gaining some employment history at your new job may make it possible to secure a loan again in the future.