Lenders want to know a lot about your work history when you apply for a mortgage. In fact, they will go back at least 24 months inquiring about where you worked as well as your income. If you have any gaps in your employment during that time you will have to explain them. You will also have to explain any changes in your employment and/or income that occurred. If you have recently changed jobs or your income has seen a recent change, you might wonder whether or not you will be able to get a mortgage. In the past, a two-year stable work history was required, but today it is much easier to get approved for a mortgage despite having a job change.
Calculating your Income
Your income might not be what you think it is when your lender calculates it for your application. What you make today might be higher than the amount of money that is used to qualify you for a mortgage. A 24-month average of your income is taken. This could make your qualifying income quite a bit lower than the income that you bring home today. This will be especially true if you had any type of employment gap or you received a recent raise. If you are an hourly employee or you receive bonuses/overtime pay, your income will also appear lower than you might anticipate because the figures are averaged in order to equalize the amount of money you make throughout the year, not just during a particularly good time of year.
Steady Employment History
It used to be that you had to be employed at the same company or at the very least, within the same industry for 2 years prior to applying for a mortgage. While lenders would still love for this to be the case, they are a bit more lenient in that respect as long as you have the paperwork to back it up. If you changed jobs within the last two years, you will need to explain the job change, why you did it and show how it impacted your finances. If the new job helped to put you in a better position financially, then the explanation is easy. If the new job was more of a forced decision due to a company downsizing or you were let go, then you will have a little more explaining to do, but the process will be the same.
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Changing Jobs During Mortgage Application Process
In some cases, you might find that you are changing jobs right in the middle of the mortgage application process. As long as you are staying employed and have the appropriate documentation to show your new title on a job offer letter and your compensation package, the lender will likely accept it. The one thing that you will have to wait for in most cases, however, is for the income to show up on a paystub. Most lenders require the most recent 30-days of income to be documented on a paystub, which means that you will need to be in the new position for more than 30 days before you can complete the mortgage application process.
Compensating Factors
A common need when you have a job change, especially if you have changed industries, is compensating factors. This means having good credit, a low debt-to-income ratio and adequate reserves in your accounts. An excellent credit history is considered one with no late payments and a credit score over 740. Scores of this nature often convince lenders to let employment history slide a bit, as long as the necessary documentation is in place. A low debt-ratio is one that is less than 36 percent and adequate reserves means having at least 6 months of mortgage payments put away in a liquid account.
If you have a rather unique employment history, do not think that you are unable to get a mortgage. What mortgage companies want today is documentation. As long as everything is on paper and is verifiable, they are willing to work with a variety of situations. A situation that may not work is when you have a job lined up but have not started yet, even if you have an offer letter and verification. Lenders want to see at least 30 days of your new income before processing your loan. If you have 30 days of income and the right paperwork, however, chances are you will be able to make it through the mortgage loan application process.
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