Important Things to Avoid Before Buying a Home
For most
people, changing employers will not really affect your ability to
qualify for a mortgage loan, especially if you are going to be earning
more money. For some homebuyers, however, the effects of changing jobs
can be disastrous to your loan application.
How Changing Jobs Affects Buying a Home
Salaried Employees
If you are a
salaried employee who does not earn additional income from commissions,
bonuses, or over-time, switching employers should not create a problem.
If you can, try to remain in the same line of work. Hopefully, you will
be earning a higher salary, which will help you better qualify for a
mortgage.
Hourly Employees
If your
income is based on hourly wages and you work a straight forty hours a
week without over-time, changing jobs should not create any problems.
Commissioned Employees
If a
substantial portion of your income is derived from commissions, you
should not change jobs before buying a home. This has to do with the way that mortgage lenders calculate your income. They will average your commissions
over the last two years.
Changing
employers creates an uncertainty about your future earnings from
commissions. There is no track record from which to produce an average.
Even if you are selling the same type of product with essentially the
same commission structure, the underwriter cannot be certain that past
earnings will accurately reflect future earnings.
In this job segment, changing jobs would likely negatively impact your ability to buy a home.
Bonuses
If a
substantial portion of your income on the new job is anticipated to come from
bonuses, you may want to consider delaying an employment change.
Mortgage lenders will rarely consider future bonuses as income unless
you have been on the same job for two years and have a track record of
receiving those bonuses. Then they will average your bonuses over the
last two years in calculating your income.
Changing employers means that you do not have the two-year track record necessary to count bonuses as income.
Part-Time Employees
If you earn
an hourly income but rarely work as many as forty hours a week, you should not
change jobs. There would be no way to tell how many hours you will work
each week on the new job, so no way to accurately calculate your income.
If you remain on the old job, the lender would be able to average your
earnings.
Over-Time
Since all
employers award overtime hours differently, your overtime income cannot
be determined if you change jobs. If you stay on your present job, your
lender will give you credit for overtime income. They will determine
your overtime earnings over the last two years, then calculate a monthly
average.
Self-Employment
If you are considering a change to self-employment before buying a new home, don’t do it. Buy the home first.
Again, lenders like
to see a two-year track record of self-employment income when approving a
loan. Plus, self-employed individuals tend to include a lot of expenses
on the Schedule C of their tax returns, especially in the early years
of self-employment. While this minimizes your tax obligation to the IRS,
it also minimizes your income to qualify for a home loan.
If you are considering
changing your business from a sole proprietorship to a partnership or
corporation, you should also delay that until you purchase your new
home.
no company name available
Gretta Sheffer Minnema
Re/Max College Park Realty
(562) 472-8929