If you're ready to purchase a home, but you have recently made a job change and are nervous that you may have ruined your chances, don't be so discouraged. Many people will tell you that if you have changed jobs, or industries, within the last 24 months, you will not be qualified for a home loan. While that may be the case in some cases, it is not a definitive line. This post will help you understand how your job situation will affect your chances of buying a home.
When determining the loan amount you can afford, your lender will calculate your average income based on the last 24 months. It's very straightforward if you have had the same job, in the same industry, with the same pay. For those who have had a change, it may be a little more work, but it is still possible in some situations.
If you have recently changed something about your employment, the lender is going to need the following from you (and/or your employer) in order to close on a home loan: an offer letter, a role change letter if you have had a title change and commensurate compensation package change, and the most recent pay stub along with verification of continued employment.
HOW LENDERS VIEW HOURLY EMPLOYEES
This group is under the tightest microscope because an employee may have a full time schedule (which is ideal for the lending process), but for those that work slightly less than full time, with fluctuating hours from week to week, this can make the process difficult.
Your income gets averaged for as long as you have been an hourly employee, even if you're making more money now on a per hour basis. For example, if you were making $40/hour and now you make $50/hour, the average income earned over the past 24 months (including the lower wage) would apply.
In order to get your higher wages factored into the calculation, you will need the following from your employer: an offer letter, a current pay stub and a detailed description of the compensation structure with a new employer. These items may get you an exception due to relocation or an alternative circumstance.
In either situation, your most recent verification of employment can bridge the gap between how many hours worked in the year to date, supporting the new federal ability-to-pay requirements.
HOW LENDERS VIEW SALARIED EMPLOYEES
Lenders like working with salaried employees because a set salary streamlines the income calculation in the qualifying process. Even if you are changing positions, from one salaried position to another salaried position, there should be no problem for getting qualified as long as you can explain any job gaps within the last 24 months.
Each job you have had in the lat 24 months has to be detailed and itemized with dates so there is no gap in employment. If there is a gap in employment, the lender will need a written explanation detailing the transition.
Even if there has been a change from one salaried position to another salaried position with a title change, it should still be fine as long as you are paid the same - with a flat salaried income.
SALARIED WITH OVERTIME BONUSES OR COMMISSION
If you have a new role that is salaried with big commissions or bonuses, and you do not have a history of this additional add-on income, it cannot be counted as income for the qualifying of a new loan.
A borrower cannot have a history of overtime and then change jobs to now have add-on commission income and expect the lender to include the add-on income in the past 24 month average when there is no prior history of it.
CHANGING FOR SALARY TO HOURLY PAY
If you are changing from a salaried position to an hourly paid position, the lender is going to use your hourly income, supported with a pay stub and verification of employment. As long as your position is in the same field, and your title and role is similar, you should be fine.
FUTURE PROMOTION OR RAISE
If you are expecting a job title change or raise in the near future, it is very unlikely the lender will take the projected income into account, even if the promotion or raise is guaranteed.
If you can't provide a pay stub with year to date income (usually a 30 day pay stub), along with a letter detailing the change, you will not be approved for the loan. In order to get your projected income taken into consideration, you will need to provide the details of the raise, including the role change letter and at least one pay stub.
If you are thinking about purchasing a home down the road, start having conversations with your lender now so he can help guide you through any bumps along the way so that you are ready when the time comes. This process will include allowing a lender to review your credit, debt, income and assets to confirm your ability to qualify for buying a home.
