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Darryl Brasseur's Blog

By Darryl Brasseur | Broker in Prairieville, LA

Want a mortgage? Do Not change your job status before the house closes!

by Darryl Brasseur Broker, Brasseur Realty Baton Rouge, La.


 I recently had a client that ran into problems while trying to buy the home of their dreams. I decided to write a blog on the issue of changing jobs before closing escrow so hopefully it will save another potential home buyer a lot of headaches along the way. I always advise clients that the most critical stage of the home buying process is from the time that you put a home "under contract" until it closes and you are handed the keys. Recently mortgage lenders have "tightened" their lending practices since the collapse in the housing market. They are scrutinizing loans more closely now than ever before. My advise is not to change ANYTHING related to your credit or changes in employment (even if it is a better paying job) until after the settlement date. Below are things to consider before making a change in employment if you are thinking about buying a home....Changing employers will not really affect your ability to qualify for a mortgage loan for most people. For some home buyers, however, the effects of changing jobs can be disastrous to your loan application. Below are tips on avoiding problems in the loan process...


Salaried Employees


   If you are a salaried employee who does not earn additional income from commissions, bonuses, or over-time, switching employers should not create a problem. Just make sure to remain in the same line of work.  Hopefully, you will be earning a higher salary, which will help you better qualify for a mortgage.
Hourly Employees

If your income is based on hourly wages and you work a straight forty hours a week without over-time, changing jobs should not create any problems.
Commissioned Employees

If a substantial portion of your income is derived from commissions, you should not change jobs before buying a home. This has to do with how mortgage lenders calculate your income. They average your commissions over the last two years.

Changing employers creates an uncertainty about your future earnings from commissions. There is no track record from which to produce an average. Even if you are selling the same type of product with essentially the same commission structure, the underwriter cannot be certain that past earnings will accurately reflect future earnings.

Changing jobs would negatively impact your ability to buy a home.
Bonuses

If a substantial portion of your income on the new job will come from bonuses, you may want to consider delaying an employment change. Mortgage lenders will rarely consider future bonuses as income unless you have been on the same job for two years and have a track record of receiving those bonuses. Then they will average your bonuses over the last two years in calculating your income.

Changing employers means that you do not have the two-year track record necessary to count bonuses as income.

Part-Time Employees

If you earn an hourly income but rarely work forty hours a week, you should not change jobs. There would be no way to tell how many hours you will work each week on the new job, so no way to accurately calculate your income. If you remain on the old job, the lender can just average your earnings.
Over-Time

Since all employers award overtime hours differently, your overtime income cannot be determined if you change jobs. If you stay on your present job, your lender will give you credit for overtime income. They will determine your overtime earnings over the last two years, then calculate a monthly average.

Self-Employment

If you are considering a change to self-employment before buying a new home, don’t do it. Buy the home first.

Lenders like to see a two-year track record of self-employment income when approving a loan. Plus, self-employed individuals tend to include a lot of expenses on the Schedule C of their tax returns, especially in the early years of self-employment. While this minimizes your tax obligation to the IRS, it also minimizes your income to qualify for a home loan.

If you are considering changing your business from a sole proprietorship to a partnership or corporation, you should also delay that until you purchase your new home.

Comments

By Michael Andries,  Thu Sep 2 2010, 09:22
Very good advice, good job
By Homebuyer2011,  Wed Jun 8 2011, 12:35
what if an hourly employee (40 hrs/wk) gets a new salary job- in the same line of work, different company, comparable pay. Would this create a problem? This is a situation I am currently in and we are scheduled to close escrow next week. Any information you can provide is greatly appreciated!

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