November 21, 2016
Your Mortgage, Your Job – The Vital Connection
If you’ve ever mentioned to anyone that you’ve been thinking of buying a house, it’s almost certain that the subject of your employment has come up. Because lenders want to be as sure as they can be that they only issue mortgages to people who can cover them each month, they look very closely at the income applicants generate. So what exactly do lenders look at when they’re considering mortgage applications? What factors weigh most heavily in their decisions? Usually the first thing you’ll hear when you mention that you’re looking for a house is ‘How long have you held your current job?’ The rule of thumb is two years of employment with the same company – it indicates a stable work history and a dependable income. But is this really the gold standard? Can you have a shorter work history, or one that shows a recent job change? The answer may surprise you. When it comes to obtaining a mortgage, income, of course, is paramount. But not all income is created equal in the eyes of mortgage companies. This is especially true when you look at it in conjunction with the amount of time you’ve logged in at your job. Let’s look at the differences: Salaried Positions If the lion’s share of the family income comes from salaries, without commissions, bonuses or overtime being taken into account, you can have a recent change in your employment without it having much effect on your ability to get a mortgage. As long as you stay within the same field, and are making at least as much as you did at your last job, most lenders won’t bat an eye at a recent job change. If you’ve gotten a significant raise by changing positions, it can even enhance your standing with a lender. Full-Time Positions Paid Hourly If your income is based on an hourly wage, without bonuses, overtime or commissions, the same is true as it is for salaried positions. A lateral or positive change should not prevent you from obtaining a mortgage. Part-Time Positions Paid Hourly Unlike their full-time counterparts, part-time hourly jobs won’t give lenders a stable base with which to calculate an average income. There is no guarantee a part-time employee will receive the same number of hours from week to week from their current employer as they have from a past employer, so there is no track record of average hours worked per week over a long period on which to base a projected income. If your wages are going to be included when the mortgage is obtained, you should have the ideal two year period of employment on your side. Commission, Bonuses and Overtime If any of these sources of income play a big part in your overall compensation package, a two year employment history with the same employer becomes very important. Since most lenders prefer to calculate an average commission, overtime or bonus income over the course of twenty four months, you should definitely not make a job change less than two years before applying for a mortgage. If you’ve just started a new job, there’s an insufficient track record of an average income with your current employer to satisfy most lenders. If You’re Self-Employed If you’re thinking about starting your own business, it is ALWAYS best to buy your home before taking the plunge. Lenders rarely approve the applications of self-employed individuals having less than two years of success owning and operating their own businesses. Remember that people who own their own businesses tend to list many expenses on Schedule C of their annual taxes, especially in the first years of self-employment. This will definitely decrease the amount of taxes you’ll pay to the IRS, but it also reduces the amount of income you can declare to qualify for a home loan. If you’re a business owner who has been part of a partnership or corporation, and you’re considering changing to a sole proprietorship, or vice versa, it’s also recommended that you wait two years after doing so to apply for a mortgage. If you’re wondering about your job status and its effect on your ability to get a mortgage, the professionals at Ernest Signature Custom Homes can help you determine if your employment situation is likely to have an effect on the qualification process. Call us anytime at (912) 756-4135 – we’re here to answer your questions!