In the last few days I’ll bet we’ve talked to 4 people who say that they are considering a job change, and want to know what that’s going to do to their pre qualification to buy a home. Changing jobs before you buy a house is definitely better (in my opinion) than doing it DURING the mortgage process – however there are some factors you need to consider.
Are you going to stay in the same line of work? Are you going to be working under a different type of income plan – like Commissions? Are you considering going to work as a Contract Employee, or become otherwise self employed?
And most importantly… will there be a probationary period after you are hired???
Here’s a question from a recent college grad, who is in the “market” to buy a house:
“I have a job interview tomorrow and I have a good feeling that I could land a full time job. If I get the salary I think I will get, I think I could afford a $165,000 or less house. I was wondering how long I have to have the job before I can get a loan? I have good credit, I always pay in full and on time, and I graduated from college last year. I read online that you can get a loan with 3.5% down. I think I could get this either from my current credit cards or live with my parents for a few months and save that amount. So how long do I need a job for? A year? I would really like to get a house before Christmas – if i could. I am 23 if that matters at all.”
First Time Home Buyers, especially recent college grads who want to buy a house, have several options in this situation. There are no hard and fast rules as to the length of employment with an FHA insured loan. Ditto for USDA Loans, which require no down payments. The income must be stable, and we need to expect it to continue. In the case of trying to rely on stipends, alimony, child support, apprenticeships or winnings (from the lottery for instance) we must show that the income is for a period of at least 3 years after closing.
All Jobs Are Not Created Equally
We live in the Greater Raleigh Metro Area, and there are a ton of Contract IT folks working here. That situation may be the perfect scenario for your exciting new job, but the Underwriter will probably not be so happy. When qualifying you for a mortgage, underwriters rely on a stable employment history. Contract Employment is essentially being self-employed. So we would require 2 years of tax returns in that situation, to prove that you are getting continuous assignments, and that there are few to zero UN-reimbursed business expenses. For Contract Employees, and self-employed borrowers, we are looking for a couple of years of steady or increasing income to determine the loan amount you are capable of paying back.
Switching jobs shortly before or after applying for a mortgage may make it much harder to qualify. Again, because there is often a probationary period, we have to wait until that is past to close your mortgage. We’ve also had mom’s who were going on Maternity Leave… well, you will need to be BACK on the job to use your income to qualify, or we need to close BEFORE you deliver or go on bed rest. A phone call will be made within 48 hours of closing to see if you are still employed… so don’t QUIT and take another job the week you are getting your house! Wait until the week AFTER you close on the house!
Debt To Income Ratios
Your gross income will be used to calculate your housing ratio on most loans. VA Loans really just look at the total debt – while other loans, especially Conventional Loans consider the ratio of your housing payment to your Gross Income. Your income matters because in North Carolina the law requires us to verify that you make enough income to be able to handle your house payments. It’s the LAW. We will also compare your current monthly house payments (rent etc) with what your new payment will be (including the mortgage, PMI, property taxes and homeowners insurance) to see if you are going to have a huge payment shock.
Someone who is currently paying $950 a month (for instance) in rent and is going to a $1350 a month total house payment will need to show that they have the ability to SAVE. Having NSFs on your current bank statement could be an indication to an Underwriter that you are struggling at $950 (hoping this makes sense).
Part time income: FHA says that you had to be on that Part Time job for at least 18 months before they will count the income. Ditto for USDA Home Loans and VA, although some underwriters will require 24 months. We see this pretty often with Firemen and Deputy Sherriffs. We just did a loan for a Professor of Music, that gave Voice lessons on the side for the University. We were able to get a letter from the University that this was actually part of their compensation for Professors, and include the income to qualify them. Stipends, and Research Grants that have less than 3 years on them will generally not be considered as sources of income – although our personal opinion is that they should.
Retirement Income, Investments, pensions, Social Security or royalties: If you’re using non-job income to qualify for a mortgage, the underwriter will want proof that the income will last for at least 3 more years. You must have actually received your first Social Security payment. With Royalties, we will average your income for the pat 2 years, and for Investments, we will need to see what you’ve actually drawn out. Most retirement income can be grossed up, as it’s not taxed.
If you can not qualify, but feel confident that you can make the mortgage payments, FHA allows us to add a Non-Occupying Co-Borrower. We recently did this for a family where the wife purchased the home with her brother. The husband had a short sale in the last 24 months and did not qualify to purchase a home yet. She had good credit and a job, but did not make enough on her own to purchase the home. By adding her brother to the loan – they could move out of their apartment! She can refinance her brother off the loan when her income rises, or her husband can go on the loan with her. We can DEFINITELY add a co-borrower to help from an INCOME qualifying perspective – however, if you need a co-borrower because you don’t meet the minimum credit requirements, the co-borrower will not help.
If you’re going to change jobs, particularly to a new field, or start a new company – postpone the jump until after you’ve closed on your mortgage. Alternatively, you can postpone buying a house until you’re a couple of years into your new job, at which point you can document your stable income… but by then, homes prices will have gone up several times, and mortgage rates too!
If you are considering a mortgage loan, or if you have more questions about: Changing Jobs Before You Buy A House – please call Steve and Eleanor Thorne Or leave us a comment below, we try to answer all questions 919-649-5058.