How joining the big resignation could hamper home-buying plans
If you’ve joined the Great Resignation in the past year, you may have found it even harder to compete in the already wild pandemic housing market.
A record number of Americans quit their jobs in 2021, according to the Bureau of Labor Statistics, and while it was a liberating experience for many, it added a layer of complexity for quits who were also trying to get a mortgage. .
It’s not impossible to quit your job and close anyway, but any significant life changes during the process make your mortgage application more difficult.
Why quitting your job can make it harder to get a mortgage
Employment history is one of the main indicators that mortgage lenders consider when evaluating your application.
“Employment and income are the two most important factors considered by lenders,” says Marsha Barnes, certified financial social worker and founder of The Finance Bar. “Lenders just want to know that you can afford the monthly payments and that you can still pay them on time.”
Any change in your employment status can make lenders suspicious of your ability to pay, although not all job changes are created equal, and lenders will be more concerned about certain types of job changes.
Ace Watanasuparp, national director of strategic sales at Citizens Bank, says lenders generally view applicants more favorably if they change similar jobs, or at least continue to file W-2 tax forms, rather than switching jobs. independent with 1099 deposit.
“When it comes to getting a mortgage, clients really need to understand that changing jobs at the macro level can affect your ability to qualify for a loan,” says Watanasuparp. “Once you jump into a new industry, you start from scratch.”
Why the timing of your resignation matters
Buying a home doesn’t stop you from changing careers, but it does mean you need to think strategically about your priorities.
“If you are someone who is considering quitting your job, what do you really want for your life in the next year or two?” Barnes said. “Reassess when you quit your job” if buying a home is the most important goal.
Although you only need your first paycheck or a few months under your belt to show your work history at a new business, most lenders will want to see a minimum of two years of tax returns as proof that a new business is sustainable if you leave to strike yourself.
“For many employers, even if you go to another job that pays you more, you’re often on probation,” Barnes says. “If you think like a lender, those are all things that come into play if they’re considering getting you a mortgage.”
More generally, says Watanasuparp, it’s not a good idea to make major lifestyle changes while you’re applying for a mortgage. “First and foremost, I always say to all of our clients, if you’re looking to buy a home, stay put. Don’t go out and get into debt, go out and get a car loan while getting a mortgage. You want to show the stability of the bank.
How to save your candidacy if you resign before closing
So you quit your job in a fit of passion and keep pushing ahead with applying for a mortgage. In this case, contact your loan officer as soon as possible to work out a strategy.
“You need to let the lender know you quit your job, even if it’s during COVID,” Barnes says.
Watanasuparp agrees that disclosing everything about your finances to your loan officer is crucial, and adds that your loan officer can help you develop a strategy to keep your application moving forward in many cases.
“Be as transparent as possible with your loan officer,” says Watanasuparp. “If you quit your job and have something planned, we may be able to help you.”
Providing documents such as your offer letter, new pay stubs, proof of bonuses, or other financial ballast can keep your mortgage application going even if you change careers.
Keep in mind, however, that if you are leaving a corporate job to start a new business, you may have to wait a while before getting a new loan.
Advice for all mortgage applicants
No matter your life situation, a few basics will always apply. A key factor in any mortgage application is your credit score. The higher your score, the more a strong candidate you will appear to lenders and the lower your interest rate is likely to be. Barnes says his former employer, Wells Fargo, has a new tool for customers called Credit Close-Up, which helps them better understand and improve their scores.
Beyond credit, having generally healthy savings and finances overall will make it easier to get a mortgage. See Bankrate’s guide to getting a mortgage for more.
At the end of the line
Changing jobs while applying for a mortgage may make you seem like a riskier candidate to lenders, but that doesn’t mean it completely erases any chance of getting a loan.
If your work situation changes during your application, talk to your loan officer and be transparent about what’s happening so you can determine your best option.
If the job change is within your control, it’s a good idea to wait until you’ve taken out the loan if you can.
“I don’t recommend people do this, but if you end up changing jobs after the mortgage is closed, the banks won’t withdraw their commitment or approval for you.” said Watanasuparp. “But before you do that, make sure you cross your I’s and cross your T’s and understand all the ins and outs of the adventure you’re about to embark on.”