How lenders look at employment and income

As long as your current job does not have a termination date, most lenders consider your employment permanent and ongoing.

For a standard mortgage application, underwriters need to see a two-year work history. If you’ve been at your job — or within the industry — for that long, no further questions should be needed.

If you’ve spent less than two years in your career, your employment history comes into play. Here’s what the lender looks for:

• Your qualifications and training
• The health of your industry and company
• How often you change jobs
• Extended periods of unemployment
• Increases in pay and responsibility over time
• Work history within the same field
• Jobs that match your pay and training

How lenders view your job change

There’s a big difference between changing jobs before buying a house and changing jobs while buying a house.

Changing jobs applying for a mortgage

If necessary, you could change jobs in the months or weeks before you begin the loan application process. In fact, if you get a promotion, your loan application shouldn’t be affected at all.

But some job changes could complicate your application even if you haven’t applied for a loan yet. We’ll explain more below.

Changing jobs applying for a mortgage

Changing jobs you’ve applied for a mortgage but before the loan closes could wreak havoc on your application. 

When you change jobs after applying for a loan, underwriters have to start their work all over again, basing your application off your new job. Plus, if you’re changing professions, you’d have a shakier employment history from the lender’s point of view.

You may still get approved based on your new job, but only after some delays.  

Acceptable job changes before buying 

Most job changes should not affect a mortgage application if you haven’t applied for your mortgage yet.

But you should find out how your lender will view your career move before you apply for your new mortgage loan. If the job change raises a red flag for your loan officer, consider delaying your job change until you close on your new home loan.

Usually, job changes that resemble the following scenarios won’t cause problems for your loan application — as long as you complete the career transition before you start the home buying process: 

Same industry, higher income

Bill has been working as a tax accountant for several years for the same company. He has been recruited by another firm, and it’s offering him 20 percent more income than his current company.

He wants to accept, but his new home is under construction, and he’ll need a new mortgage when the home is completed in two more months. Bill is concerned that a job change will affect his mortgage approval.

Bill’s job change should not impact his application negatively. In fact, the additional income will be viewed as beneficial:

• His total work history exceeds two years
• He does not change jobs frequently
• His new job is in the same industry
• His industry is stable

Don’t make an “unacceptable” job change 

Not all career moves are acceptable to mortgage lenders, even if you get paid more in your new career.

This is where you have to be careful. The following is a list of changes that could jeopardize your mortgage approval:

• Switching from a salaried position to a bonus or commission structure
• Altering your status from W-2 employee to contract employee; this would be one of the worst things you could do since it interrupts your work history paper trail
• Changing to a completely different industry or position
• Moving jobs with no change in pay, responsibility, or location

Even if your pay increases, be careful about your pay structure. A seemingly small change can make a big difference in your approval status.

Let’s look closer at each of these scenarios:

New bonus or commission pay structure

Sometimes, companies change employee pay structures. They move a bigger portion of pay — or all of it — to bonus or commission.

These changes may help an employee earn more, but they can also complicate the mortgage application process.

To count as income, incentive pay must have been received for 12 to 24 months, depending on the overall strength of your mortgage application and loan program.

FHA loans, though, allow commission-based income to be counted with less than a 12-month history. The employer must have changed the employee’s pay structure, and the employee must be in the exact same position with the same employer.

Contractors and consultants

You might sit at the same desk. You might do the same job for the same people. You might make money.

But once you become a contractor, you become self-employed. If you’ve been self-employed for less than five years you’d need to share your income tax forms to document your income. 

If you own your own business, you could show your income via business tax forms.

Sometimes lenders will let borrowers use bank statements to show income in the form of bank deposits.

Switching industries

It’s one thing to go from driving a forklift for Ace Construction to driving one for Tip Top Builders.

It’s another to switch from a pharmaceutical sales rep to a nightclub manager. Delay the radical career change until you close on your mortgage and start making mortgage payments.

Mortgage approval factors besides employment

Mortgage lenders care about employment history because it can predict an applicant’s ability to repay their new home loan. 

But other factors matter, too. Along with a stable work history, you’ll be a stronger loan applicant if you have:

• A lower debt-to-income ratio (DTI): DTI measures flexibility in your monthly budget. If you have a lot of credit card debt, for example, your DTI will be higher
• A higher credit score: Your credit score shows your history of repaying debts. A score of at least 620 can create more loan options, but it is possible to get an FHA home loan with a score in the 500s
• A bigger down payment: Most mortgages require you to pay at least 3 percent down, though VA and USDA loans let you skip the down payment. Exceeding the minimum down payment can help you qualify for some loans

Along with helping you qualify, a stronger application can also lower your monthly payments because it helps you lock in a lower interest rate.

Does my work history affect refinancing?

Employment history matters when homeowners refinance an existing home loan.

A refinance replaces your current loan with a new loan. Since you’re getting a new loan, the lender will ask for verification of employment and a credit check — just like it would if you were buying a home.

There are some exceptions. 

FAQ about changing jobs while buying a house

What are today’s rates?

Mortgage applicants can achieve homeownership when they can show a steady work history and meet other credit qualifications.

With interest rates still hovering at historic lows, homebuyers can often qualify for larger home loan amounts at lower monthly payments. 

Even if you think you can’t receive an approval, it’s worth checking your home mortgage eligibility.