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How
Changing Jobs Affects Buying a Home
For most people, changing
employers will not really affect your ability to qualify for a mortgage
loan. For some homebuyers, however, the effects of changing jobs can be
disastrous to your loan application.
Salaried
Employees
If you are a salaried
employee who does not earn additional income from commissions, bonuses,
or over-time, switching employers should not create a problem. Just make
sure to remain in the same line of work. Hopefully, you will be
earning a higher salary, which will help you better qualify for a
mortgage.
Hourly
Employees
If your income is based
on hourly wages and you work a straight forty hours a week without
over-time, changing jobs should not create any problems.
Commissioned
Employees
If a substantial portion
of your income is derived from commissions, you should not change jobs
before buying a home. This has to do with how mortgage lenders calculate
your income. They average your commissions over the last two years.
Changing employers
creates an uncertainty about your future earnings from commissions.
There is no track record from which to produce an average. Even if you
are selling the same type of product with essentially the same
commission structure, the underwriter cannot be certain that past
earnings will accurately reflect future earnings.
Changing jobs would
negatively impact your ability to buy a home.
Bonuses
If a substantial portion
of your income on the new job will come from bonuses, you may want to
consider delaying an employment change. Mortgage lenders will rarely
consider future bonuses as income unless you have been on the same job
for two years and have a track record of receiving those bonuses. Then
they will average your bonuses over the last two years in calculating
your income.
Changing employers means
that you do not have the two-year track record necessary to count
bonuses as income.
Part-Time
Employees
If you earn an hourly
income but rarely work forty hours a week, you should not change jobs.
There would be no way to tell how many hours you will work each week on
the new job, so no way to accurately calculate your income. If you
remain on the old job, the lender can just average your earnings.
Over-Time
Since all employers award overtime hours differently,
your overtime income cannot be determined if you change jobs. If you
stay on your present job, your lender will give you credit for overtime
income. They will determine your overtime earnings over the last two
years, then calculate a monthly average.
Self-Employment
If you are considering a
change to self-employment before buying a new home, don't do it.
Buy the home first.
Lenders like to see a
two-year track record of self-employment income when approving a loan.
Plus, self-employed individuals tend to include a lot of expenses on the
Schedule C of their tax returns, especially in the early years of
self-employment. While this minimizes your tax obligation to the IRS, it
also minimizes your income to qualify for a home loan.
If you are considering changing your
business from a sole proprietorship to a partnership or corporation, you
should also delay that until you purchase your new home.
copyright 2006 by Terry
Light and RealEstate ABC |
