A varied employment history may inhibit your ability to get approved for a mortgage loan because lenders want to see proof of steady employment. However, disclosing certain information in your application could possibly grant you a chance at being approved for a home loan product.
Qualifying for a Mortgage with a New Job
Obtaining approval for a mortgage can be difficult -but not always impossible- if you have a new job. The best way to find out if you qualify for a mortgage loan with a new home is to contact your preferred lender and ask about restrictions regarding new employment.
Typically, the lender will request the following documents:
- Proof of income (last two pay statements)
- Offer letter (if you are relocating)
- Two-years of job history (typically verified through tax returns)
- Bank statements from the past three months (to demonstrate that you have cash-on-hand to make the requested down-payment)
You may also be asked to provide a letter indicating that the probationary period has ended at your place of employment.
Other Ways to Strengthen Your Loan Application
A new job may not be as significant a factor if the applicant(s) have excellent credit ratings, a large down payment or additional sources of income. However, this depends on the lender's guidelines. While some lenders are willing to accept a new job on a mortgage application, other lenders will immediately deny the loan application.
Lenders thoroughly analyze your credit history to determine if there is any chance that you may default on the loan. If your credit score is high and your history does not indicate an excessive amount of debt, delinquent accounts and recent applications for credit, it may be easier for you to qualify for a mortgage with a new job because you may not pose too much of a risk to the lender.
Significant Down Payment
Applicants with excellent credit and cash on hand to make large down payments are usually offered the best interest rates, and other factors, such as a new job, may not hold as much weight during the decision process.
A larger down payment may also assist you in obtaining approval because it eliminates the need to obtain Private Mortgage Insurance (PMI), which protects the lender in the event that you default on the loan. Although it is only required until you reach 20% in equity on the home, PMI equates to 1/2 to 1% of the actual loan and tacks on an additional expense to your monthly mortgage. If your debt-to-income ratios are already too close for comfort, this amount can result in the rejection of your loan application.
A co-borrower with a strong credit history and steady income can add strength to the application; this option is best when the co-borrower is purchasing the home with you. Lenders may not allow primary borrowers to add co-borrowers to the home if they do not plan to be on the mortgage title.
Additional Sources of Income
If you have other sources of steady income, such as investments, Social Security or pensions, include them with the loan application to increase your chances of approval.
There are several additional factors that you should consider when applying for a mortgage with a new job.
Many mortgage applicants do not understand why having a new job can hinder them from getting approved for a home loan, particularly if the new job is more prestigious or comes with a significant increase in income. In some instances, lenders hesitate to approve a mortgage loan for an applicant who has a new job is because of the lack of steady income, which increases the chances of timely mortgage payments being made.
The preference of most mortgage lenders is that applicants have two years of continual employment with the same employer or in the same career field with no lengthy breaks. Some mortgage lenders will also inquire about prior positions you held with the employer and may question any major changes to the position you held where your position fundamentally changed, with the exception of promotions.
Employment can be considered to be stable even if it is with more than one employer as long as the career field is the same. For example, a doctor who works for a hospital for one year and then for a clinic for a year and a half may be considered as consecutively employed for the full two and a half years. On the other hand, a doctor who works for a hospital for one year and then switches to teaching at a university for a year and a half may not be considered to be continuously employed within the same field by some mortgage lenders.
Students who graduate college and go on to work for less than two years may also be considered continually employed as long as their job is within their field of study, but this depends on the regulations of the lender.
Self-employment may be more difficult to verify, so mortgage lenders generally want to see two years of steady or increasing income, which is proven with tax returns from the past two years. Without proof of income from self-employment, mortgage lenders may be apprehensive about approving a mortgage loan.
A year-to-date balance sheet and profit/loss statement may also be requested to provide insights into the financial position of the company.
If you experience issues with obtaining approval, inquire about the lender regarding the terms of qualification and try again when you have held your job for an extended period of time and meet all the necessary criteria, or search for another lender willing to approve your application despite your new job.