Getting a new home or a new job is exciting! But what happens when both life events happen simultaneously? If you’re applying for a home loan and have a new employer, lenders will look at a variety of information to determine your ability to repay and your eligibility as a borrower. Here are a few things to know if (and when) this situation applies to you.
After the financial crisis, the government established something called the “ability-to-repay” rule, which the Consumer Financial Protection Bureau defines as a “reasonable and good faith determination most mortgage lenders are required to make that you are able to pay back the loan.” To sum it up, this means that lenders will look at a variety of information about your finances beyond just a credit check to determine whether you can pay back a loan.
What Do Lenders Assess To Determine Ability To Repay?
The CFPB says that lenders must assess and document a prospective borrower’s “income, assets, employment, credit history, and monthly expenses.” Most loan applications today require two years of 1040 income tax statements, two years of employment W2s, bank statements, credit checks, and at least four pay stubs (read more about how to prepare when applying for a home loan here).
Practically speaking, if you start a new job in the middle of your loan application process you won’t have two years of documents from your current place of employment — and you might not even have those four pay stubs yet. The good news is that there’s a verification of employment process that includes an underwriter or loan processor calling your employer to confirm the information you’ve given on your application and constitutes a thorough employment check.
How A New Job Can Affect A Mortgage Application
Experts from Realtor.com say that the potential impact of a new job on a mortgage application depends on the kind of work that a borrower does — and also whether it requires a relocation. Generally speaking, it bodes better for your mortgage application if your new job is in the same field and within the same salary range as your old one. Lenders might be concerned, however, if you’re switching from a salaried position to a freelance gig, or if you are changing fields entirely.
At the end of the day, one of the most valuable things you can do is be fully transparent with your mortgage lender. As soon as anything changes that could affect your financial situation, do your best to let your lender know right away. Best case scenario, you’ll be able to avoid potential roadblocks on your journey to homeownership.