I am often asked by borrowers whether changing jobs will affect their ability to qualify for a home loan. Whenever you are in the process of buying a home or contemplating buying in the future it is wise to consider the effect of any job changes you may be considering. With proper planning you may be able to avoid putting yourself in a bad position.
Job Change in the Same Field
In general, a job change within the same field, in which you are paid as a W-2 employee should not cause any problems. However you may want to consider timing the change so that its impact is mitigated. You certainly want to avoid making the change while the loan is in process. Lenders will do a final employment verification within a day or two of closing the loan. I have heard horror stories of lenders making their final call to verify employment only to find that the borrower is no longer employed there! And if such a change is unavoidable, you definitely want to notify the lender as soon as possible to avoid the appearance that you were attempting to withhold such important information. While I have never had this situation occur, I am often amazed at the information that borrowers “forget” to tell me!
W-2 Employee and Recently Changed Jobs
If you are a W-2 employee and have recently changed jobs, most lenders will require that you have 30 days of paystubs before they will approve the loan. This rule does make it a bit tricky for borrowers who are relocating from one city to another and trying to establish housing before starting their new job. It is usually necessary to find temporary housing in the city where you are relocating to so that you can start your new job and accumulate the required 30 days of employment.
There are other important factors to consider in making a job change, particularly if you are not a W-2 employee or receive compensation that is variable in nature, such as overtime, commissions, bonuses, etc.
If you begin employment that is considered “self-employment” and do not have a history of being self-employed, you will not be able to qualify for the loan. As an example of how restrictive this rule can be, I once had a client whose employer changed all of the employees from W-2 employees to 1099 contractors a few months before he came to me for the loan. He performed the same duties as before and worked for the same company, but was now considered to be a self-employed contractor. I was unable to get him qualified for the loan as he did not have a history of being self-employed.
Another difficulty is when compensation is variable. If even a portion of your compensation is variable, such as commissions or bonuses that are not guaranteed, the lender will generally require a two year history of this type of pay with your current employer. So, for instance, if you typically receive a base salary plus commissions and you switch to a new company with a similar pay structure, you will be able to use the base salary for compensation, but most likely will not be able to use your commissions because you do not have a history of receiving commissions from this employer. If you have not changed jobs, you would be able to use that portion of the compensation to qualify, but even then, it will be averaged for the most recent two years. Compensation that is not salary or hourly can also be difficult to estimate. Some workers are paid based on things that are difficult to quantify, such as the mechanic who is paid by the job, truck driver paid based on loads carried and miles driven, bartender receiving primarily tips, etc. Without a history of experience, an underwriter has no way of knowing what to expect for the future.