The Impacts of Changing Jobs On Your Mortgage
Are you thinking of changing your job or switching to another industry altogether?
Often a new job opportunity is exciting. But it can be difficult to navigate the process of changing jobs while applying for a mortgage. At Capkon, we always support your step towards growth. Nevertheless, you have to consider the impacts a job change can have on the mortgage process and what you can do about it.
Why job changes concern lenders?
Changing jobs impacts the probability of getting approved for a mortgage as most lenders will only grant you one if you’ve been in your job for a while. From the lender’s point of view, your employment history and income are overriding aspects of your potential to make payments without financial difficulty. A lender cannot testify for your future income, based on your current income when you are switching jobs.
Besides, many lenders perceive a new job as less secure than the one you’ve had for a while. It is riskier to give you a home loan because you could fall behind on your mortgage payments if you lose your job because of:
- A probation period:
Your employer could end your contract without notice during this period (until your role becomes permanent). So being on probation does affect your mortgage.
Typically, the newest employees are first to be laid off when the company needs to make cuts.
You must also meet the lender’s acceptance criteria, which include your employment status, age, income, and credit score, for you to be considered a low-risk borrower. That said, the details of your circumstances are indispensable.
So can you change jobs when buying a house?
Fortunately, merely switching jobs or pay structure doesn’t exclude you from being approved for a home loan.
However, it is necessary to notify the lenders as early on as possible about your new job prospects. Send any related work documents to your lender promptly. If you sign a new employment contract, forward it to your lender. Be cautious about switching jobs even after your loan has been accepted. Often lenders will do a final review to verify that your employment and income haven’t changed since the final loan approval was issued.
What changes in employment would negatively impact your mortgage?
Creditors want to see proof of a steady and reliable income that will continue for at least the next three years. If your switch in jobs makes your income less predictable, you will look like a greater lending risk. Here are a few types of changes in employment that might affect your mortgage approval process:
- Changing from a salaried role to one based on commission or bonuses:
Commissions, bonuses, and overtime earnings are usually averaged over the last 24 months. Your income can possibly be perceived as less guaranteed. This sort of pay structure could cause inconvenience to the lenders and may even hinder your mortgage approval.
- Changing to an entirely different industry or position:
When you’re changing fields, your past work experience would no longer be a credible indicator of your future income. Lenders are more likely to favor borrowers with at least two years of experience in their current industry so it’s best to wait before you change the fields.
- Changing jobs frequently:
Job changes, such as from interns to full-time staff to managers in the same company, won’t raise concerns. Yet, frequently changing jobs in a similar role that don’t demonstrate professional growth is often a red flag for the lenders.
- Becoming self-employed:
If you’re becoming self-employed or starting your own business, even less of your income is assured which could set off even more alarm bells. Most lenders necessitate a two-year history of self-employment before even considering mortgage approval for self-employed borrowers.
On top of that, lenders cannot accurately measure your income without your tax returns as you go from being an employee to being self-employed. This means your mortgage approval will be postponed until after your taxes have been filed and you have to pay any taxes due before you can use your self-employment income.
What changes in employment would have no impact on your mortgage?
If you’re an hourly or salaried employee that doesn’t earn extra from commissions, bonuses, or over-time then switching to a similar role with equivalent pay won’t impact your mortgage approval.
How can you qualify for a mortgage if you’re changing jobs?
It is important to show the lenders that your new job and pay are going to be secure. Provide them with any payslips that you get from your new job to prove that you can afford to satisfy the banks’ income requirements. Regardless of how much you’re making, lenders disapprove of irregular, unpredictable earnings. Document as much of your past irregular income stream as possible and calculate trends and averages that can help you to prove that your income is reliable and consistent.
Consider getting a letter from your new boss verifying the pay, benefits, starting date, and the security of your position. If you are switching to a different field, then the creditors might require “no probation” in the letter.
If you are in the contract role (PAYG contractor, not with Australian Business Number), then you need to show the contract letter. The remaining term of the contract should be for at least 6 months.
If you start your own business, then your company must be ABN registered for at least 2 years with a tax return for at least 1 financial year.
Two- year work experience is a customary requirement for most mortgage applications. If you’ve been in your role for 2 years, then your mortgage process will go on smoothly. However, if your experience in the role is less than 2 years, then your lenders will take the following into account while examining your application:
- Your qualification and expertise
- The health of your company and your industry
- Frequency of your job changes
- Extended unemployment periods
- Increment in pay and responsibility over the period
- Work history in the same field
Also, be prepared to clarify why you transferred jobs and what your credentials are for the new job to your lender.
So, are you applying for a mortgage while changing jobs?
We can help!
At Capkon, we understand that everyone doesn’t have the same conventional income structure. As mortgage professionals, we can help you understand how your employment situation can impact your ability to qualify for a mortgage. Depending on your work history, we can represent your situation more accurately. If necessary, we can also search and recommend different lenders according to your needs.
If you are looking for a mortgage despite a job change, please contact the Capkon Team. Please BOOK a time that suits you best.