So, you’re thinking about buying a house or maybe you’ve already been pre-approved for a home loan…congratulations! And now you’ve been offered a fabulous new job or perhaps an opportunity to start a new business! Life couldn’t be better, right? Well, hold on mister or miss (que the sound of squealing breaks)…let’s talk about this first before you make that big move!
First you should know that your lender will be very happy for you with this new career opportunity, but may tell you that you no longer qualify for a home loan (at least for a while) or the amount of loan that you now qualify for has gone down….a lot. Any change in income, could negatively or positively affect your ability to purchase a home…and here’s why.
Let’s talk about a job CHANGE. This could mean either a job change within your company or a new company all together. If you are moving to a job within your company and your salary/hourly stays the same or goes UP (even better!), then good for you! If you are changing jobs from a salary/hourly position only and now a portion of your income is commission or bonus, this may be a problem.
Let’s look at a scenario. You’ve been offered a new job with a new company (or a new job within your
company) that pays $50,000 in salary PLUS a commission/bonus of $50,000 per year (for those of us
who struggle with math, that’s a total of $100,000). This seems like a GREAT opportunity because you
will be making more than your current salary of $75,000. Congratulations are in order because you will
be earning a lot more money in your new job!
Not to burst your hypothetical bubble, but the reality of this scenario is that your qualifying income for
purchasing a home is now $50,000 (your new salary only) and NOT $100,000 (your new salary +
commission). This is because the $50,000 commission/bonus cannot be used until you have received it
for at least 2 years.
Also, keep in mind that after you have received commission/bonus for two years, the amount of
commission or bonus actually used for qualifying income will be averaged over the two years. This
applies whether you start a job with a new company or a new position in the same company.
Lastly, if you are starting a job with a new company, the underwriter may require that you be in that job
for 12 to 24 months if you are now working in a new industry or position that you have never worked in.
An exception may be if you are switching jobs in to a similar position and industry (such as a teacher
who moves from one district to another making the same amount or money or more). In this case, you
most likely will just need to have started the job prior to closing on your home loan and provide a letter
from your new employer showing the start date, salary, and that all of “conditions of employment” have
been met (like drug testing).
Maybe you’re just fed up with working “for the man” and have decided to break out on your own and
dip your toe in the water of self-employment. There is a lot of risk to being self-employed and that’s
how a lender (and Fannie Mae, Freddie Mac, FHA, and so on) sees it too, so self-employment is in its
own ball game when it comes to qualifying income for a home loan. This is a big topic will be discussed
in a later blog as this is its own separate animal.
Finally, any job change during the preapproval and most certainly while you are in contract on a
property will not only cause a coronary for your lender and realtor, but could jeopardize your
preapproval or the closing of your new home (or most likely delay the closing if the seller agrees to an
extension). I can confidently say that all realtors and lenders would discourage a job change during this
All of these scenarios will vary depending on your particular circumstances, the lender’s and loan
investor’s guidelines, and the underwriter’s decision, so always consult with your loan officer before
making your job change decision.
Michele Black is a Loan Officer at Evergreen Home Loans (MLS# 1308581). She can be reached at 360-
553-7077 or firstname.lastname@example.org