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Getting a new home or a new job is exciting. But what happens when they happen at the same time? If you’re applying for a home loan and have a new employer, lenders will look at a variety of information to determine your eligibility as a borrower. Here are answers to common questions about getting a mortgage with a new job to help you prepare.
How can a new job affect a mortgage application?
Generally speaking, applying for a mortgage after getting a new job in the same field and same salary range (or higher) won’t affect your eligibility. Lenders might require more information if your career has taken a riskier turn, however. This could be switching from a salaried position to a freelance gig, starting your own business, or changing fields. These roles may affect how reliable your income is and your ability to repay your mortgage. That said, they don’t prevent qualified homebuyers from getting a mortgage in and of themselves.
On the flipside if you’ve gone from a being a 1099 employee (independent contractor, self-employed, etc.) to a full-time role, your new job may help your mortgage application.
How will lenders assess my “ability to repay”?
After the financial crisis of 2008, the government established something called the “ability-to-repay” rule. The Consumer Financial Protection Bureau describes this as a “reasonable and good faith determination most mortgage lenders are required to make” to determine if you can pay a loan back. To do this, lenders will look at a variety of information about your finances.
Most loan applications require documentation and qualifications such as:
- Two years of 1040 income tax statements
- Two years of employment W2s or 1099s (if you have gaps in your employment, see below)
- Bank statements
- Proof of additional income such as investment income, Social Security, or alimony if they apply
- Credit checks
- At least four pay stubs (read more about how to prepare when applying for a home loan)
What if there are gaps in my employment?
Gaps in employment aren’t uncommon and mortgage lenders usually take into consideration how long they are. A month or two between jobs probably won’t be an issue. In contrast, breaks of 6 months or more may require additional information about your circumstances. Lenders may need to establish why you were unemployed and if that affects your future job stability. For example, millions of people faced layoffs due to the pandemic, and many lenders will be understanding of that. Others common considerations may include if a homebuyer left their last job due to events like maternity leave, pursuing higher education, or a short-term disability. The best thing to do is to talk to a Mortgage Professional about your new job and current options.
What can I do if my new job affects my mortgage’s terms?
If your new job situation negatively impacts your mortgage terms, explore your options. Lenders often consider “compensating factors,” or things that can strengthen a mortgage application. These can include:
- Making a bigger down payment
- Having a lot of savings
- Maintaining a good credit score (see our blog on credit scores in the pandemic)
- Having potential for income growth/promotions in your new job
If your savings are low, also ask about low down payment mortgages. VA loans allow down payments as low as 0%, for example, and other loan types may require as little as 3%. Learn more in our blog on low down payment mortgage options.
You may also want to consider paying discount points. Discount points are fees paid to a lending institution that facilitate a lower mortgage rate. Pricing varies by lender, but paying 1% of your loan upfront may be enough to buy a point.
Will the mortgage company contact my previous employers?
Old employers are contacted as part of a verification of employment process to verify how long a borrower was employed. An underwriter or loan processor contacts them to confirm information on your application.
At the end of the day, one of the most valuable things you can do is talk about your needs and goals. Ready to get started? Contact us to discuss your new job with a Mortgage Professional and get Pre-Approved for a loan today.
Tradenames and trademarks used in this blog post are the property of their respective owners. Nationstar Mortgage LLC d/b/a Mr. Cooper is not affiliated, associated, or sponsored by any of these owners. Use of these names and trademarks is not intended to and does not imply endorsement, but is for identification purposes only. Information provided does not necessarily represent the views of Mr. Cooper. Information is subject to change without notice
