Life doesn’t always give you a warning, so when your homebuying journey aligns with a new job, it can’t really be helped. However, you may be wondering how your new gig can affect your ability to buy a home since changes to your income can prevent some borrowers from being approved for a mortgage.
A new job doesn’t necessarily hurt your chances of securing a mortgage, but there are some details and requirements you need to keep in mind as you go through the application process.
Typical Income Requirements for a Mortgage
Income guidelines and requirements may vary by lender and the type of loan you apply for, but here are some of the most commonly asked for items:
Two Years of Income History
You often need two years’ documentation of your work history, which can include W-2s or 1099s, tax returns and recent pay stubs. Lenders need this to confirm you have a solid, consistent work history. For some loans, you typically need to show that you’ve been at your current job for at least six months if you have employment gaps.
Verification of Employment (VOE)
Your lender will typically require verification of employment (VOE), which is a formal process to confirm that your employment and income are expected to be ongoing. This may involve a phone call with your previous employers to learn more information about your employment and job stability.
Submit a Letter from Your New Employer
You might need a bit more verification if you recently started a new job or are changing jobs during the mortgage process. This could include a letter from your new employer. Some lenders may also ask for a copy of your original offer letter if you have one. A personal letter from your job that states your role, responsibilities, start date and salary could help solidify your employment for your lender.
If your new job is generally the same as your old one, there likely won’t be any problems. However, if your salary decreased, you’re undergoing a career change or if the type of income changed (such as from salaried income to commission-based), your lender may look at your other qualifications a little more closely and with a little more scrutiny.
Other Mortgage Qualifications to Consider
A new job isn’t the end of your mortgage journey. Your lender may consider a number of other factors as well.
Credit Score
The better your credit score, the less of a risk you’ll seem to lenders. Your credit history would show that you’re able to pay back your debts consistently in full and on time. If your credit score isn’t great, you may want to take some time to improve it. Additionally, you may want to check your credit report for any errors or inconsistencies and get them corrected before you apply for a mortgage.
Cash Reserves
If you have more money in savings, your lender may not see you as much of a risk. Robust cash savings could signal to your lender that even if your new job were to not work out, you can still pay for your mortgage for a couple of months (depending on how much you have saved). Before applying for a mortgage, you may want to work on building up your savings or establishing an emergency fund.
Debt-to-Income Ratio
Your debt-to-income (DTI) ratio is a number that measures how much of your gross monthly income goes to your monthly debts. Typically, a lower DTI shows your lender that you’re able to handle your current debt and if you’re able to manage the additional mortgage on top of that debt. If you want to decrease this ratio, you’ll likely want to make higher payments and/or avoid unnecessary additional debt, like opening new credit cards.
Down Payment
The higher your down payment, the less you’ll need to borrow from a lender which will make you less of a risk as a borrower. You may want to consider putting down more than you originally planned for, find out if you can receive the funds as a gift from a family member or close friend or learn if you’re qualified for down payment assistance.
Other Assets
Perhaps your income isn’t the only factor of value you have. Other assets can be factored in when qualifying you for a mortgage, such as any pensions, retirement accounts or stocks. Your lender can also take into account physical assets, like cars, boats, antiques, art, jewelry or other real estate.
Work with the Professionals
While starting a new job isn’t necessarily a dealbreaker, you’ll likely want to pay closer attention to other qualifiers during the mortgage application process. Work with your lender and real estate agent to help ensure that your job won’t be a blocker to becoming a homeowner.
This information is intended for educational purposes only. Products and interest rates subject to change without notice. Loan products are subject to credit approval and include terms and conditions, fees and other costs. Terms and conditions may apply. Property insurance is required on all loans secured by property. VA loan products are subject to VA eligibility requirements. Adjustable Rate Mortgage (ARM) interest rates and monthly payment are subject to adjustment. Upon submission of a full application, a mortgage banker will review and provide you with the terms, conditions, disclosures, and additional details on the interest rates that apply to your individual situation.
