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How Changing Jobs Affects Buying a Home
For most people, changing employers will not really affect your ability to qualify for a mortgage loan, especially if you are going to be earning more money. For some homebuyers, however, the effects of changing jobs can be disastrous to your loan application.
If you are a salaried employee who does not earn additional income from commissions, bonuses, or over-time, switching employers should not create a problem. Just make sure to remain in the same line of work. Hopefully, you will be earning a higher salary, which will help you better qualify for a mortgage. Likewise, if your income is based on hourly wages and you work a straight forty hours a week without overtime, changing jobs should not create any problems.
If a substantial portion of your income is derived from commissions , you should not change jobs before buying a home. This is because mortgage lenders calculate your income by averaging your commissions over the last two years. Changing employers creates an uncertainty about your future earnings from commissions. There is no track record from which to produce an average. Even if you are selling the same type of product with essentially the same commission structure, the underwriter cannot be certain that past earnings will accurately reflect future earnings.
If a substantial portion of your income on the new job will come from bonuses , you may want to consider delaying an employment change. Mortgage lenders will rarely consider future bonuses as income unless you have been on the same job for two years and have a track record of receiving those bonuses. They will then average your bonuses over the last two years in calculating your income.
If you earn an hourly income but rarely work forty hours a week, you should not change jobs. There would be no way to tell how many hours you will work each week on the new job, and therefore no way to accurately calculate your income.
All employers award overtime hours differently. If you stay on your present job, your lender will give you credit for overtime income. They will determine your overtime earnings over the last two years and then calculate a monthly average.
If you are considering a change to self-employment before buying a new home, don't do it. Buy the home first. Lenders like to see a two-year track record of self-employment income when approving a loan. Plus, self-employed individuals tend to include a lot of expenses on the Schedule C of their tax returns, especially in the early years of self-employment. While this minimizes your tax obligation to the IRS, it also minimizes your income to qualify for a home loan.
Similarly, if you are considering changing your business from a sole proprietorship to a partnership or corporation, you should also delay that until you purchase your new home.
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