Buying a new home is an exciting time. The thrill of your upcoming closing may inspire you to make other life changes like take a vacation, start a business, or change jobs.
Even though you’ve been approved for a mortgage, the financial decisions you make between your initial loan approval and closing are critical.
Lenders often pull credit within 24 hours prior to closing. If you’ve opened new credit accounts or changed jobs without informing your mortgage company, you could lose your loan approval.
Here’s what you need to know about getting a mortgage and changing jobs:
Acceptable job change situations
If you’ve changed jobs between loan approval and closing, don’t panic. Not all changes in employment are problematic. The first thing to do is to contact your lender.
The following circumstances usually don’t cause a problem with loan approval:
- Your new job is in the same industry as your prior job
- Pay structure is the same (leaving a salaried job for a salaried job)
- Income is the same or higher than your previous job
Lenders usually require the following for your new job, so get your paperwork in order as quickly as possible:
- Verification of employment from the new job (often done over the phone)
- Offer letter
- Title change letter
Career moves that can derail your mortgage
Mortgage companies look for the lowest amount of risk possible when deciding who to lend to. While some job changes won’t cause problems with your mortgage, others can stop the loan process entirely.
Here are tips for keeping yourself in the clear:
1. Put your career-change ambitions on hold
Because mortgage companies look at the prior two years of employment, it’s critical that your new job is in the same industry as your old one.
Moving to an unrelated industry means you could have a higher risk of losing or leaving the new job. Getting a job in a different industry combined with a less than stellar credit profile is likely to stop your loan dead in its tracks.
2. Don’t move into a job with variable compensation
Another thing that can put your loan at risk is when you change jobs, and your income becomes more variable, such as through bonuses, overtime or commission pay.
Bonus and overtime pay has to be consistent for two years in order for underwriters to consider it as income. Even if this income is guaranteed in an offer letter from your new employer, it doesn’t count.
What about self-employment?
It’s not impossible for self-employed people to get a mortgage, but if you’re thinking of starting a new business, wait until after you leave the closing table.
There are certain situations where self-employment won’t hurt your ability to get a mortgage.
If you began your business in the prior year while you were still working full-time, you can use the prior year’s income to qualify. However, your previous year’s income when you were a W-2 employee won’t count, so you may need a cosigner to get approved.
Even someone who closes one business and starts another may encounter problems. Since business income is usually determined by your prior year’s tax returns, a new business will have no prior year income.
Check with your lender for more information, and be sure to tell them your plans well in advance.
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