How Switching Jobs Can Affect Your Mortgage
A change in your job status can impact your mortgage in many ways but often, a career move won't affect your debt in any meaningful way — this goes for homeowners who are already comfortably established in their homes and paying their mortgage back as agreed. As well, if you are still finalizing a loan agreement, you'll need to inform your lender, but many changes are minor (moving from one salaried position to another, for instance). They won't result in much change to the overall process, Realtor notes.
Once you've finalized the loan and made a real estate purchase, a change in your job circumstances doesn't alter the agreement. However, on a personal level, you'll still need to make sure you can afford the repayments; otherwise, you may end up losing your home to foreclosure.
The only real-time to consider job changes as they relate to the availability of mortgage lending is during the initial offer and application process. For example, suppose you leave your job during the appraisal process of a mortgage loan application. In that case, this can affect how your lender views the details of your life and finances and may even lead to rejection if the change is sufficiently substantial.
Self-employed workers need a longer lead time
The biggest factor for a lender when it comes to mortgage approval (concerning a change in employment) is in the world of self-employment and contracting status. Self-employed individuals often earn varying paychecks based on contributed hours or other deliverables. This leads to fluctuations in routine income, even as their status as a worker remains solid with an individual company or network of brands.
Realtor reports that many lenders will seek an income history for self-employed borrowers that dates back at least two years to verify regular income. Functionally, this can mean that changing status as a contractor can severely impact your ability to borrow for a new home. On the other hand, remaining in your role for at least two years before seeking a mortgage (or working on overlapping contributions to get a head start on the new timeline before leaving a previous contract) can improve your ability to borrow with a favorable rate and terms.
The most important component here is stability. Changing jobs is inevitable — The Balance Careers reports that median employee tenure in 2018 was a few months over four years for men and four years for women — so maintaining stability in other aspects of your financial circumstances is crucial when preparing for a career move. Showing consistent savings habits, low overall debt, and a great credit score can work to balance out the equation a little more favorably.
Salaried employees won't need to fret over the details much
Realtor notes that transitioning from one salaried position to another won't affect the lending decision much. The main concern that a lender has when considering your application is a potential inability to pay back the debt in the future. Fluctuating income is a significant indicator of potential trouble in the future, but stable and consistent income puts any questions over employment history to bed, typically in short order.
Underwriting a loan is a complex process, but for salaried employees, there is often a much more streamlined workflow. In addition, salaries are relatively immune to external factors that can change the income calculation of a household, whereas a contractor is susceptible to a barrage of potential issues. For one thing, an hourly employee or self-employed contractor that can't work because of injury, illness, or schedule conflicts can't earn as much as they may have hoped.
Many self-employed individuals keep tabs on their earnings by averaging prior months and estimating a typical paycheck multiplied throughout the year, but this doesn't factor in an unexpected period in which the person can't work. A car accident, sick days, or the increased drain on time that comes with having children can influence a self-employed person's ability to earn as usual. Because of the stability of permanent, salaried employment, changing jobs in this way is likely a minor blip on the radar of your lender.
Existing mortgage loans are only affected in the budgetary math
Of course, any job change that might come your way will affect your budgetary math, and it's important to remember this for your own sake. Using a mortgage calculator is a great idea when approaching a new borrowing opportunity, Investopedia says, and constant recalculation throughout your time in any home will help you maintain balance in your finances and lifestyle more broadly.
A change in your job title, office environment, or employer typically means an alteration to your paycheck — either positively or negatively. With a change here, it's essential to recalculate your income and expenses to understand where you may be vulnerable and what you can do to resolve these issues. For one thing, a job change may leave a gap in income for a few weeks (or perhaps even a month, if you haven't carefully planned the move).
While many people are working hard to save for these contingencies, CNBC reports that 56% of Americans can't cover a sudden $1,000 expense with their savings alone. When changing jobs, it's crucial to calculate how your debts and other costs will be affected by the new salary and any short-term outage in incoming paychecks that may come as a result.
Transparency is essential, regardless of your personal situation
At the end of the day, transparency is the best approach when working through the mortgage application process. Your lender will be more than happy to discuss your situation and plans, helping to guide you toward the best outcome for you and your family. Realtor notes that if you're in the middle of mortgage approval, then you should contact your lender before making the change (if possible, of course) and explain what you are planning and why.
Job changes within your company or industry typically won't affect the mortgage application at all, but if your lender thinks you may be hiding something from them, then you might lose the loan altogether, even as a result of simple oversight.
Remaining transparent throughout the lending process can help you get the advice and information you need while ensuring that you're continuing to make positive financial decisions for yourself and your family. Contacting your lender to discuss career-related plans can give you the guidance you need to ensure both a positive career move and a successful application for a new mortgage that will set your family up for comfort and success for many years to come.