Buying a house is stressful enough, so the last thing we would recommend is changing jobs while buying a house. Not only will you add the stress of being the new employee at your new company, but you might actually jeopardize your mortgage loan approval process.
So in summary, if you’re lucky enough to be purchasing all cash, then changing jobs might just be unnecessarily stressful, but not fatal to your ability to close. However, if the bank is underwriting your mortgage based on the income from your former job, then changing jobs while buying a house may cause your lender to rescind your loan offer before closing.
Changing jobs during a mortgage application
Changing jobs during a mortgage application is generally not advisable. When applying for a mortgage, lenders typically require borrowers to provide proof of stable income, as it is a critical factor in assessing their ability to repay the loan. If you change jobs, lenders may view this as a sign of instability, which could affect your mortgage application negatively.
Furthermore, changing jobs may also impact the amount of your loan. Lenders use your income to determine the amount of money they will lend you, so if you switch jobs, you may have a lower income, which could lead to a lower loan amount. This could also affect your ability to qualify for certain mortgage programs, which often have income requirements.
Another factor to consider is the probationary period that many new employees go through. During this period, employers often have the option to terminate the employee without any notice, which means that your employment may not be as stable as it seems. Lenders may be hesitant to approve your mortgage if they believe your job is not secure.
Finally, changing jobs may also delay the mortgage process. The mortgage underwriting process can take weeks or even months, and changing jobs might might mean restarting the whole process.
Or worse, changing jobs during the mortgage underwriting process could cause lenders to rescind your loan offer entirely. This would be a bad situation to be in given that it might be difficult to get a loan approved by a different lender due to the recent nature of your job change.
Pro Tip: When you apply for a mortgage, lenders typically look at your employment history to assess your ability to make mortgage payments. If you switch jobs during the application process, lenders may view this as a risk factor, as they may not have enough information about your new job or income stability.
Generally, lenders prefer to see a consistent employment history with the same employer for at least two years. This shows stability and helps assure lenders that you have a reliable source of income to make regular mortgage payments.
However, this doesn’t mean that you cannot get a mortgage if you haven’t been with the same employer for two years. Lenders may consider other factors such as your overall financial situation, credit score, and debt-to-income ratio. If you have a solid credit score, a low debt-to-income ratio, and a stable employment history, lenders may be willing to consider your mortgage application even if you haven’t been with the same employer for two years.
For self-employed individuals, the length of time you need to be self-employed varies among lenders. Some lenders require a minimum of two years of self-employment, while others may require three years or more. Lenders will typically look at your tax returns to assess your income stability and may require additional documentation such as profit and loss statements.
Generally speaking, mortgage lending standards have not loosened since the Great Financial Crisis of 2007-2008, and banks are conservative as ever when it comes to diligent underwriting standards.
For example, a self-employed individual or anyone with a “non-vanilla” source of income might encounter an extremely onerous underwriting process.
The bank might ask for anything from an investor presentation to a thorough explanation of how you plan to run your business remotely.
Will gaps in employment history affect loan approval?
If a potential borrower has gaps in their employment history, it may affect their ability to get approved for a mortgage. Lenders want to see a stable employment history and consistent income, so if a borrower has gaps in employment, it may be viewed as a red flag.
However, there are certain circumstances in which lenders may be more lenient about employment gaps. For example, if the borrower took time off to care for a family member or for personal reasons, and can provide a valid explanation for the gap, the lender may be more understanding.
In addition, if the borrower has recently started a new job after a gap in employment, the lender will want to see proof of steady income and job stability. They may require the borrower to provide additional documentation, such as a letter from the employer or recent pay stubs, to show that the borrower is now back to work and earning a consistent income.
It’s worth noting that employment gaps can have a bigger impact on self-employed borrowers. Lenders typically require at least two years of self-employment income history to qualify for a mortgage, and any gaps in that income history can make it harder to get approved.
Overall, if you have gaps in your employment history, it’s important to be upfront with your lender about it and provide a valid explanation for the gap. Depending on your circumstances, there may be ways to mitigate the impact of an employment gap on your mortgage application.
However, it’s important to keep in mind that lenders ultimately want to see a stable employment history and consistent income, so anything that deviates from that may require additional documentation or explanation.
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Yes, lenders will typically call your employer or your employer’s HR department the day before closing to verify your employment status. This means if you were laid off or changed jobs before closing, the bank would be unable to verify your employment status (and thus your source of income) and would likely rescind their loan commitment letter.
This is one of the most common reasons for having a loan fall through the day before closing, and why we can’t stress enough the importance of avoiding any changes to your income or credit profile during the loan approval process.
It’s worth noting that this may actually be the second employment verification a lender does just before the loan is funded.
This is to ensure that the borrower is still employed and earning a consistent income up until the time the loan is funded.
In addition to employment verification, lenders may also conduct a second credit check or request additional documentation before closing on a mortgage loan. This is to ensure that the borrower’s financial situation has not changed significantly since the loan was approved and to confirm that they are still able to make the required mortgage payments.
There’s no time limit for when you can switch jobs (or be laid off) after closing with a mortgage if the change was a bona fide new development post closing. However, problems can arise for you if you default on your mortgage and your lender discovers that you knew about the pending job change (or layoff) prior to closing, in which case you may be taken to court for fraud.
Of course, even if you knew about the pending job change or layoff prior to closing, but still pay your mortgage on-time, then there’s no reason for the lender to come after you.
So for example, you are about to close on a mortgage but you’ve been notified that you’re about to be laid off from your job and main source of income.
You proceed to beg your employer to delay the layoff for a month until after closing occurs. This won’t necessarily be a problem for you as long as you make your mortgage payments on time, as it’s not like you need to continue any sort of dialogue with your mortgage banker post-closing.
Obviously, if the bank finds out you did this after you default on your mortgage, then the bank can certainly go after you for fraudulently inducing the bank to lend you money based on income that was going to disappear.
