You found a new job and want to buy a house. That’s excellent news, but what if the mortgage lender doesn’t approve your mortgage application? You can avoid this problem by understanding how lenders evaluate mortgage applications and how they compare them to other applicants’ applications. Here are some things you should know about getting a mortgage when you have recently changed jobs:
Can You Get A Mortgage With A New Job?
Obtaining a mortgage approval with a new job is possible, but it will take time. The mortgage lender will want to see that you have been employed by the same company for at least two years before they approve your application.
If you’ve just started working at a company, they may not be willing to grant you that much time if they don’t know that you will stay there long enough. They also will want proof of steady income, so they know your job is stable and reliable, which means it’s worth their investment in having given out this home loan.
Qualifying Factors When Getting A Mortgage New Job
If you think this is the best time to buy a house and have just started a new job, you may wonder how this will affect your ability to qualify for a loan. The good news is that several factors can help ensure your mortgage approval.
Debt To Income Ratio
The debt to income ratio is one of the factors that lenders use to determine if you can qualify for a mortgage new job. The DTI is the amount of debt you have compared to your income. It’s a measure of how much debt you can afford.
Lenders typically use this number with other financial information when deciding whether or not to approve your home loan application. For example, suppose your spouse has a stable job and good income but also has significant credit card debts from an old car loan. This could negatively impact their loan approval for the mortgage if they don’t pay off those debts before applying.
Your credit score is one of the most vital factors when obtaining a mortgage approval for a new job. When you apply for financing, mortgage lenders consider your total DTI, which is how much you spend on monthly expenses versus how much you make each month. If your credit score is poor, then you may not be able to qualify for loans or mortgages at all.
Your credit score can be influenced by many factors, including late payments and outstanding debts that haven’t been paid in full yet. Lenders will want to see that these negative items have been removed from your history before they give you a mortgage approval.
The Property Type
The type of property you want to buy is a factor when getting a mortgage with a new job. The type of property you wish to buy determines the type and mortgage term you can get. Suppose you’re buying an apartment, for example. In that case, your income would likely be sufficient for buying that property and getting the required mortgage amount.
However, if you were buying more expensive real estate, such as commercial or residential land. Then your income may not be sufficient to obtain loans at those prices. This is because banks consider them high risk and require larger down payments or higher monthly payments.
When you’re obtaining a mortgage approval with a new job, your household income is one of several factors that lenders will look at. The quantity of money you can borrow is based on the combined gross monthly income of all members of your household. This includes your spouse and others who live with you and contribute to your expenses.
Qualifying Income Types Mortgage Lenders Look
As you may know, there are different ways that borrowers can qualify for a mortgage approval. The most common is from a borrower’s job history and credit history. However, other ways to demonstrate your ability to repay the home loan can also help you get loan approval.
One of those is showing proof that you have income from multiple sources. When lenders look at your qualifying income types, they’ll want to see that any money coming in is stable and long-term. This helps them decide if they should lend you money based on how much money comes into your life each month or year.
When you apply for a mortgage with a new job, the annual salary reported on your W-2 is a qualifying income type that mortgage lenders look at. They’ll use it to determine if you can afford the payments and how much house you can buy. Your annual salary should be at least 2.5 times the amount of your monthly mortgage payment.
If every month of your employment history has been stable for at least two years. Then lenders will accept this as proof that future income will also be steady. Suppose there are changes in current employment or pay rates within two years before applying. Other documentation may be required to show stability, including tax returns or pay stubs with consecutive months of work.
Hourly pay is a valid and common form of income for mortgage financing. In general, if you have stable hourly pay that has been steady for at least three months, this type of income can be used to qualify for a loan.
The only exception to the rule is if your employer requires you regularly work over 40 hours per week or more than 30 days out of the month. In this case, lenders will not consider your hourly wages as qualified income. This is because it’s not consistent with what the mortgage lender would expect from someone who works an average number of hours and days per month.
It is essential to understand the overtime pay structure and how it can be used as a qualifying bonus income type when obtaining a mortgage with a new position. Overtime pay refers to any bonus income beyond your regular payment, such as by working additional hours in your current job or taking on other tasks outside your 9-5 shift at the office.
If you have regular employment but still need more cash than just your standard paycheck, it could help you qualify for your next home loan.
Commission income is a qualifying income type lenders look for when applying for a mortgage with a new employment. Suppose more than 25% of your income is from the commission. Then your underwriter will consider your base income the monthly average of your past 24 months of revenue rather than just the gross amount of commissions earned in that period.
This means that if you made $100k in commission last year but only $30k this year, they wouldn’t count this year’s earnings as part of their calculation because there hasn’t been enough time to account for it yet (one year).
When you’re self employed, your income is considered a qualifying and proven source of income. So if you can show that you’ve been self employed for at least two years and have been paid at least one year in the last two years.
Then lenders will consider your documentation as proof they can rely on your earnings to make payments on their loans. Remember, like any other income verification process, a loan officer will require at least two years of verified self employment job history.
Documents Needed In The Mortgage Application Process
When you’re obtaining a mortgage with a new source of income, you’ll need to provide your lender with specific documents. These documents will help the mortgage lender verify that you are who you say you are and that your income is what it says it is.
An employment history is a document used in the mortgage application process to determine if you qualify for a mortgage. The lender will likely pull this information from your previous employment if you’re obtaining a mortgage with a new career.
Your job history shows how long your current job has been held. Also, it shows if there have been any gaps in time between jobs. The lender wants to know about any gaps in employment because these could indicate that you may not be able to make regular payments on your mortgage later.
Bank Statements Proving Your Cash Reserves
The cash reserve is the money you have in your bank account that you can use to pay the mortgage. While most lenders won’t expect you to have an entire year’s mortgage payments, they’ll want to see that you’ve saved some money. It should be enough to cover a few months’ expenses if something goes wrong.
The bank statements proving your cash reserves will also show proof that your income is stable over time. This document is often requested by lenders who want to ensure no significant fluctuations in revenue when they look at past tax returns during their underwriting mortgage process.
The final payslip is a document you’ll need when applying for a mortgage with your recent job change. It’s a record showing your income during a specific period. Your final payslip should include the amount of money deposited into your account and any deductions.
Usually, lenders can see how much money was taken out of your account and whether or not they’ve been paid back in full. This can also help them determine if there are any issues with paying off debts or meeting other obligations outside of work hours.
Employment Contract Signed By Your Employer
You will also need to submit an employment contract signed by your employer. The employment contract is a document your employer signs stating that you will receive at least 2 years of employment with them. This is important because it shows that your current job is stable and helps prove that you can afford to make monthly mortgage payments.
Tips For Getting A New Job Mortgage Loan
If you’re planning to purchase a home with your recent job change, here are some tips to help you get the mortgage loan you need.
Show A Letter From Your Employer
If you’re getting a new job mortgage loan, it’s essential to show that you are still in the same company you were in when you initially applied. You can do this by having a letter from your employer. A letter from your employer can help prove that you are stable and can afford the mortgage payments.
Put A Large Down Payment
Put as much down payment as you can. If you have the means to put a sizable down payment on your home, this is a great way to reduce the time it takes for your home loan approval.
However, putting too much down may not be possible if you don’t have much in savings. In that case, don’t worry. A 20% down payment is good enough. Just ensure it’s within your budget, so you don’t end up owing more than your house is worth in just a few years.
Present A Proof That You’re Still In The Same Industry
Another tip when obtaining a mortgage with a recent job change is to present proof that you’re still in the same industry. You can get a letter from your previous employer or your new employer to show that you’ll be doing similar work at their company. If they don’t have an obligation to write you such a letter, they may be more inclined to do so if they know it will help get you funding for your home loan.
As we’ve seen, getting a mortgage with a new job is quite complicated. However, being prepared for the mortgage approval process and knowing what to do is critical to ensuring you get the loan you need. Just remember to take your time, do your research, and ask questions.
To ensure your journey is smooth and successful, consider contacting our trusted real estate agents at HOMES by ARDOR. We’ll help you navigate the home buying process easily so you can focus on what’s most important: finding a home that fits your needs and budget.
Kris Reid is the CEO of Ardor SEO, a company that helps real estate professionals get more leads and customers to predictably grow their business.
Over the years, Kris acquired extensive knowledge of SEO and its practical applications in various industries, with the main focus on real estate.
In 2021 Ardor launched the Icons of Real Estate Podcast to share proven strategies from the top producing icon agents with the real estate community.
After obtaining the real estate license in 2022, Kris joined eXp Realty and launched Homes by Ardor, the platform that was built to be the fastest way to buy or sell a house. Homes by Ardor also provides leads for its partner companies and realtors.