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 counted—you can have a recent change in your employment without it affecting your ability to get a mortgage. As long as you stay in 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 may even strengthen your application.
Full-Time Positions Paid Hourly
If your income is based on an hourly wage without bonuses, overtime, or commissions, the same rules apply as salaried positions. A lateral or positive job change should not prevent you from qualifying for a mortgage.
Part-Time Positions Paid Hourly
Unlike their full-time counterparts, part-time hourly jobs don’t provide lenders with a stable base to calculate average income. There’s no guarantee that a part-time employee will consistently receive the same number of hours each week. For your part-time wages to be included in the mortgage calculation, you should ideally have two full years of verified part-time employment.
Commission, Bonuses, and Overtime
If these income types make up a large portion of your earnings, a two-year employment history with the same employer becomes crucial. Most lenders prefer to calculate an average of commission, overtime, or bonus income over 24 months. Changing jobs less than two years before applying may make it difficult for lenders to establish reliable income figures.
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 applications from self-employed individuals with less than two years of proven business success. Because self-employed people often maximize deductions on Schedule C, their taxable income appears lower—reducing the amount they can qualify for.
If you are transitioning from a partnership or corporation to a sole proprietorship, or vice versa, it’s recommended to wait two full years before applying for a mortgage to give lenders consistent documentation.
If you’re wondering how your employment situation may affect your homebuying journey, the team at Ernest Homes can help guide you. Visit our
