Changing Jobs Affects Buying a Home
Most people's ability to qualify for a home loan will not be affected by changing employers, especially if the buyer will be earning more money. For some home buyers, however, a job change can harm the buyer's ability to buy a home.
Employees that are on salary and do not earn additional income from bonuses, commissions, or over-time, should not have a problem changing jobs. However, they do need to remain in the same line of work. And, if the job change comes with a higher salary it will be easier to qualify for a loan.
Buyers that earn most of their income from commissions should not change jobs before buying a home, because lenders cannot calculate an average commission if there is no track record. Mortgage lenders calculate the earnings of commission-based employees based on the last two years of commission income. Changing employers can create an uncertainty about future commissions. The underwriter can't be certain that past commissions will predict future earnings, even if the buyer is selling the same products, in the same industry, with the same commission structure.
It may be best to delay changing employment if a large part of a buyer's income will come from bonuses. Lenders usually don't consider future bonuses as income. If the buyer has had the same job for 2 years and has a record of receiving such bonuses, then the lender calculates the income by including the average of the bonuses over the last two years. If a buyer changes employers, the two-year track record of including bonuses as income will not count.
A lender will look at a buyer's overtime earnings over the last 2 years, and then calculate a monthly average. A lender will give a buyer credit for overtime income if the buyer stays on their present job. If a buyer changes jobs, overtime income cannot be determined since employers award overtime hours differently.
When lenders need to approve a loan based on the income of the self employed, the 2-year track record comes into effect again. In addition, the self-employed tend to itemize a lot of deductions on their tax returns. This has the effect of minimizing tax obligation to the IRS, but also minimizes the income necessary to qualify for a home loan. Home seeker should not consider becoming self employed before buying a new home. My advice is to buy the home first then consider becoming self employed.