Can I qualify if I'm changing jobs?
In order to qualify you for a mortgage, a lender must be able to verify your employment income is stable and reasonably likely to continue. There are times when that can be difficult. For example, what if you're relocating and haven't started your new job? What if that dream job offer shows up while you're looking for a home?
Fortunately, conventional loan guidelines allow some flexibility. Prior to approving your mortgage, a lender must verify with your employer that you're still employed and haven't indicated you will resign. If you've accepted, but not started, a job with a new employer, that verification isn't possible. Instead, lenders can use an employment offer letter to document your prospective employment and income.
The offer letter must follow some inflexible requirements:
- It must be fully executed;
- It cannot have any contingencies, or if it does, your future employer must verify all contingencies have been cleared; and
- It must include the terms of employment, including your start date and base income.
Your start date must be within 120 days of your closing date, and you must have enough funds to cover the new housing payment between your closing date and start date in addition to your down payment and closing costs.
These guidelines only apply for conventional loans for the purchase of one-unit, primary residences. FHA and VA generally frown on offer letters as proof of income. Instead, your loan probably won't be approved until you can provide a pay stub from the new job covering at least one full pay period.
VA does allow flexibility for service members entering the civilian workforce following their release from active duty. In this case, an offer letter satisfying the requirements above should suffice.
USDA loan guidelines also suggest flexibility for an applicant with a firm offer letter for a job starting within 60 days of the closing date as long as the applicant has funds sufficient to cover the new housing payment until the job starts.
Before you race out and change jobs, it's very important to consider how your pay may change. If you're currently paid a salary, but the new job will pay a base salary plus commission, know that your lender will only be able to use the base salary as qualifying income. You generally need a two-year history of receiving commission income for it to count for qualifying. Similarly, even if your new employer promises overtime, your lender probably cannot use it as qualifying income.