If you're serious about buying a house anytime soon, do not underestimate the importance your income and job stability will have on the whole process. For starters, you may want to rule out changing careers unless you're guaranteed to step well up the income ladder. Major career revisions are best left until after you've passed Go with a lender and settled into the new home.
In some cases, a recent job change could even jettison your chances of getting approved for a loan. For example, if you rely on commissions to bolster take-home pay, you could lose much from a career change. One mortgage specialist with one of the largest lenders in North America said, "When mortgage lenders calculate income, they average commissions over the previous 24 months. If they see a switch of employers, even if you're selling the same type of product under the same commission structure, it would be very rare for that to be taken into account. An exception would really depend on the individual lender."
In most cases, a new job will actually annul a previous track record on commissions since lenders will not assume earning ability in the old job can be relied on in the new one. "A similar logic applies for bonuses," said one source.
Again, mortgage lenders will ignore an established bonus record at an old firm as any kind of predictor for earnings at a new one. The same goes for overtime earnings, which lenders do consider if an applicant can verify a steady record over two years. Lenders will use an aggregate to calculate a monthly average supplemental income source.
If you work part-time, on an hourly rate with an average work week shorter than 40 hours, changing jobs could seriously damage your chances of getting mortgage financing. Lenders just cannot forecast income in the new job without seeing a pattern of work hours, so it's in your interest to stay put.
As for the self-employed, don't even consider making a structural change if you plan to seek mortgage approval. That means not going from a sole proprietorship to a partnership or corporation or back again until you've bought the home and locked the front door. "Again, lenders only respond to a two-year track record of self-employment income when approving a loan," our mortgage specialist source said. And the fact that the self-employed rely heavily on deducting expenses on Schedule C of their tax returns doesn't help. It may lower the tax bill, but it also lowers the income on which a lender assesses the application.
Salaried employees have less to worry about when it comes to dramatic career changes. If your loan application is to be assessed strictly on salary income, changing employers may even be an asset presuming you're moving to a higher salary, which of course will buy you a bigger mortgage.
Employment has relevance to home buying for more reasons than being a simple income source. Where you work will inevitably determine where you live, meaning the new house should be within a reasonable commuting distance. If work is downtown and you're in the suburbs or vice versa, you'll need to keep within reach of the interstate.
Then there's public transport. If you'll need it, then start looking for houses along the city transport route. The stability factor at work is hugely important if you're considering buying a home. What if your job can't promise security - should you really consider taking on a mortgage?
If you yourself are unsure about your employer or even your choice of career, purchasing a home will probably limit your range of escape options. And, in the event of a future job transfer, will your new house be easy to resell?
These are unavoidable considerations any smart homebuyer should think about before even opening the real estate listings.
- Audrey Arkins, Salary.com contributor