Job stability isn’t what it used to be. Many people change jobs frequently. But, what happens if you take a different job before you buy a house? Can it leave you without a mortgage? We discuss the implications below.
How Important is Job Stability?
You might think of job stability as finding the job that pays you the most. Your lender may look at it differently, though. They want someone that shows reliability. A person that hops from job to job isn’t reliable in the eyes of a lender.
There are exceptions to the rule, though. You aren’t stuck at your same job forever. If a better opportunity comes along, it may be worth it to take it. Before you take it, consider the industry and the pay. They both play a role in your ability to secure a loan.
The Industry You Work in is Important
Lenders like to see consistency. This doesn’t mean working at the same mundane job year after year. If you change jobs, they like to see it within the same industry though. Here are 2 examples:
- John works as a teacher for 3 years. He decides he is unhappy at that school so he changes jobs. He decides to become a real estate agent. He also applies for a loan 2 months after changing jobs. He might face difficulty because of the drastic change in industries.
- Jan works as a teacher too. She decides after 3 years that she wants to go for a job as a principal. She gets the job, but at a different school. She too applies for a mortgage just 2 months after changing jobs. Jan has an easier time because she stayed within the same industry.
You might wonder why lenders care so much about the industry. It just makes sense, though. If you change like John did from teaching to real estate, you don’t have a lot of experience in real estate. Who is to say that you will succeed in that new career? John is seen as a risky borrower.
Jan, on the other hand, stays within the same industry. Yes, she changed jobs, but she has experience in the industry. Her job change was just an upward movement, not something completely drastic. The chances of her succeeding are much higher than John’s chances.
The Pay Structure Plays a Role Too
Sometimes staying within the same industry isn’t enough, though. Lenders care about your pay too. For example, going from a salaried employee to a commission employee is a whole new ballgame. Lenders look at this as risky. They would rather see a 2-year history of the commission income before giving you a loan.
If you do change jobs before getting a loan, try to keep within the same pay structure. If you are an hourly employee, switch to another hourly paid job. However, this is one case where going from hourly to salary wouldn’t be a bad thing. Lenders look at salary as the least risky because your income is predictable. It might even be more predictable than your previous hourly job.
If you are currently as a salaried employee, stick with another salaried job. Switching to hourly, commission, or bonus income only makes you look riskier. Lenders prefer that predictable salaried income. If you do switch, be prepared to wait until you have at least 2 years of the new income before applying for a loan.
The Worst Job Change You Could Make
Honestly, there is one job change you should not make before applying for a loan. If you consider going from a salaried or even commissioned employee to an independent contractor or entrepreneur, don’t. This isn’t to say that becoming your own boss isn’t a great thing – it could be. But, it could also leave you without the ability to secure a loan.
There are very few, if any lenders out there that will give you a loan just after starting your own business. At a minimum, lenders need 1 year of self-employment income to qualify you for a loan. Most lenders, however, require at least 2 years before they’ll consider your loan application.
So is it a mistake to change jobs right before taking out a loan? It depends on the circumstances. No two borrowers will have the same answer. For the borrower going from salary to commission, we caution you to wait. The same is true for any borrower wishing to open their own business. If you do, be prepared to wait at least 2 years.
Any other job change, however, might be okay. It’s best to talk to your lender first. See what they say. If you don’t like their answer, shop around. Get a variety of answers from different lenders. Then you know exactly where you stand.