At its most fundamental, the mortgage-loan approval process involves little more than determining your ability to repay a loan. It stands to reason, therefore, that lenders want to know about your employment, which is often the strongest indicator of financial reliability. Do you know how your employment history affects your home loan?
It’s more than just how much money you currently make; it’s about how likely you are to stay in the job, how likely you are to have a shift in income (specifically a downward shift), and how likely you are to maintain your income on a long-term basis.
How your Employment History Affects your Home Loan
Most Lenders Look at Past 24 Months of Employment
In almost all cases, loan professionals look at a 24-month block of employment, using this information to estimate your future income. So if you received a substantial raise in the past year, the previous year’s income will still apply to your mortgage. The higher income may be weighted larger than the previous year’s, but the smaller salary will still apply. This also means that any future raises cannot (in most cases) be applied to your current mortgage application. The past 24 months is one of the largest factors for how your employment history affects your home loan.
A Change in Job is Concerning, But Not Catastrophic
It’s a common myth that you should never change jobs before getting a home loan. In fact, the Truth About Mortgage, a mortgage information website, says that attempting to get a mortgage without two years of employment is a top ten mistake. There is some truth to this, but we certainly wouldn’t tell you to pass up a dream job to protect your mortgage-loan potential.
Statistically speaking, people in new jobs are more likely to default on a mortgage, so this could impact your chances. However, if you have a strong credit history coupled with a solid income, you should be able to get a mortgage.
A Change in Industry is More Concerning
Even more concerning to lenders is a change not just in the specific job, but the industry in which you work. So let’s say you worked for five years as a customer service representative in the insurance industry, but a year ago you switched to a job as a store manager in clothing retail. Now working in a new industry, you have a lot to learn, and the chances of staying in the job are less (again, statistically speaking). Therefore, lenders might be more hesitant to approve the loan.
Commission-Based and Self-Employed: Be Patient
Probably the most complex of all mortgage approvals is loans to people who earn their income primarily on commission or are self-employed. People in standard careers can happily point to a straightforward salary, but people with fluctuating incomes need to display 24 months (or more) of continued earnings to be approved. Even if you have a long credit history and a solid credit-to-income ratio, you will still likely need to wait 24 months after starting a self-employed or commissioned career to get the mortgage loan you need.
Learn More about how your Employment History Affects your Home Loan Chances
No matter what your employment situation, let Seth Wilcock help you sort through the complexities of the mortgage process.
We’ll make sure you have clear, reliable information so you can make the right decision for your future!