Qualifying For A Mortgage With A New Job

January 9, 2019

Qualifying for a mortgage in today’s world is much easier than it has been since the housing market crash & the Great Recession that began in 2008. The regulations and lending requirements have loosened and the lenders have a much better appetite for loans to borrowers whose jobs that are commissioned or bonus based, self-employed, or to those who have recently changed jobs.

The 3 risks that lenders review on mortgage applications are debt ratios , credit, and assets.

The general 3 risks that lenders review on mortgage applications are debt ratios (how much monthly debt vs. monthly income), credit, and assets. When Underwriters are reviewing income, they are looking for consistency over a 2-year period and the continuity of that income within the same job or industry.

There is a little more flexibility with this requirement than having low credit scores or high debt to the income earned over a monthly period.

Steady Salary or Income is What Matters

Fortunately, for buyers who have changed jobs within a 2-year period, lenders are willing to look at the full story of the change. In many cases, the buyer’s job change may have come with a raise in pay or a better opportunity for success.

If the new job is salaried based and is in the same industry or is the same position, then an applicant shouldn’t have a problem. The key is the continuity of the income and industry or position. An example of this would be a nurse who has moved her career from a hospital to a doctor’s office. As long as the nurse maintained a steady salary and stayed within the healthcare industry, the story is easy to follow.

The big take away for the lender will be if the income is still steady and will continue to be steady…

On the other hand, borrowers who switch fields will be a concern and will need to tell the story of why the switch happened with a Letter of Explanation. The big take away for the lender will be if the income is still steady and will continue to be steady, the decision of approving the mortgage will be much easier to make. An example would be an office manager for a doctor’s office taking a position as an office manager for a law firm. These will always be considered on a case by case basis, but as long as they are salaried and will continue to have a steady income, they should be fine with today’s mortgage guidelines.

Commissions, Bonuses, and Self-Employed Income

When the income is based solely on commissions or self-employed income then complications or red flags can arise. But, again it goes to the story of the borrower that is told.

Borrowers who have gone from a salaried job to self-employment will need to provide a minimum of two years’ worth of tax returns and/or bank statements to prove that their new income is stable and will continue to be stable. If the applicant is recently self-employed, their application may be turned down until a more sufficient timeline of steady income can be established.

While job history is important, the income history and stability, and a letter explaining why the change happened can overcome the inconsistency of the job history.

 

Most self-employed borrowers take advantage of write-offs and expenses when filing their tax returns. This can also be a double-edged sword because it may also reflect a lower income on those tax returns, which can cause the debt ratio to rise to a high risk or un-approvable level. There are now bank statement programs to prove income. This is an option for self-employed borrowers to show they have steady cash flow and income in the business before write-offs. These scenarios become a case by case and a Letter of Explanation goes far in helping the underwriter determine the creditworthiness of the loan applicant.

Lenders are going to be more apprehensive when reviewing income with large inconsistent bonuses or commissions. If a large portion of income is based on or includes bonuses, the lender may turn down the application until a pattern of continuity can be established. In some cases, the underwriter may back out the income of a large bonus or commission(s) if no pattern is established. Once the pattern of bonus income or commissions can be established, the lender will take that along with other compensating factors such as credit and debt to make a decision of approval.
While job history is important, the income history and stability, and a letter explaining why the change happened can overcome the inconsistency of the job history.

Other Deciding Factors for a Mortgage Approval

Lenders are going to review FICO scores, the debt-to-income ratio, and assets in determining the risk of a borrower.

High FICO scores equal low risk. FICO scores above 720 have higher regard, but I have seen mortgage approvals with FICO scores lower than 600 recently.

A low debt-to-income ratio equals a low risk. This ratio is a reflection of what your monthly debts are compared to your monthly gross income (before taxes).

The more money in the bank, the less risk in approving the mortgage.

Assets equal low risks. If a borrower has money in the bank and they can make a few months of mortgage payments if no income was generated during those months. That will be a strong compensating factor. The more money in the bank, the less risk in approving the mortgage.

When a borrower has high FICO scores and low debts compared to the income that will be brought in, lenders can also overlook the lack of job history with these compensating factors.

I’ve seen recent college graduates and doctors who are new in their residency get approved for a mortgage with a Letter of Intent from their prospective employers on jobs the borrowers have accepted. The FICO’s were high, the debts were low, and the future income showed to be steady and secure. The compensating factors graded them as low-risk borrowers.

What is the key to getting a mortgage with a new job or being self-employed? The compensating factors of the FICO, Debt-to-income ratio, and assets.

Born and raised in the Tampa Bay area, Otis earned a bachelor’s degree in business/marketing from the University of South Florida. He also attended Wagner College in Staten Island, NYC where he was a student athlete in the football program. He is actively involved in his community as evidenced by his many volunteer efforts as a youth sports coach encompassing flag football, basketball, soccer, T-ball, baseball, and softball.

You Might Also Like

What's That House Worth?

It's time to satisfy your curiosity.
Download A Guide
Real estate info at your fingertips.
Subscribe To Our Newsletter
Get In Touch
Follow Us On
                     
Important Links
Careers
Privacy Policy
DMCA Notice
Agent Login
Terms Of Service
Accessibility

© 2019 Berkshire Hathaway HomeServices Floria Properties Group, All Rights Reserved. BHH Affiliates, LLC. An independently operated subsidiary of HomeServices of America, Inc., a Berkshire Hathaway affiliate, and a franchisee of BHH Affiliates, LLC. Berkshire Hathaway HomeServices and the Berkshire HathawayHomeServices symbol are registered service marks of HomeServices of America, Inc. All information is deemed reliable but not guaranteed. Equal Housing Opportunity