FHA Loan Approval Versus Changing Jobs
August 29, 2019
You may have heard a truism about home loan approval where changes of employment are concerned. The notion that changing jobs just before or during a home loan application can hurt your chances at mortgage loan approval are not unfounded, but there are nuances that may or may not apply in a given situation.
Any change of employment that shows upward mobility is much less a liability, especially for home loan applicants who have been in the workforce for longer than two years.
If you have had a promotion with your current employer, or have been hired at a better position and/or for more pay with a new employer in such circumstances, the lender is likely to view such a move favorably unless there are complicating factors that need to be taken into account.
If you have been in the workforce a total of two years or less, frequent job changes may or may not hurt your chances at loan approval depending on the nature of your job. Some kinds of employment require frequent job changes; contractors, temp agency hires, and freelancers understand this all too well.
And in such cases, the lender may simply require some extra documentation (again, depending on the lender and circumstances) to acknowledge the borrower is indeed a good credit risk and is able to afford the loan.
But some types of frequent job change do not help the borrower; such job changes can hurt your chances at FHA loan approval. What are these changes and why do they hurt the borrower?
Any switch from traditional employment to contract, freelance, or other non-traditional work in the year leading up to the loan application or as the application is being processed can be harmful to loan approval chances.
This is because the FHA and your lender will require a minimum amount of time engaged in such employment before you can be considered a good risk for the loan. The bare minimum in some cases (switching to commission income from a salary, for example) is one year and the length of time required may depend on how long you have already been working under such conditions.
Switching to self-employment generally requires two years as a self-employed person before your lender can consider you a good risk for the loan.
Why is this? One important reason is that the lender must show that your current income is stable and likely to continue. Without the ability to show this on paper, your lender has a much harder time justifying loan approval unless there are compensating factors, and even then those factors may or may not be enough to warrant approving the mortgage.
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RELATED VIDEOS:
What Is an FHA Loan?
Using an FHA Loan Calculator
Meeting FHA Loan Guidelines Improves Your Chances
Any change of employment that shows upward mobility is much less a liability, especially for home loan applicants who have been in the workforce for longer than two years.
If you have had a promotion with your current employer, or have been hired at a better position and/or for more pay with a new employer in such circumstances, the lender is likely to view such a move favorably unless there are complicating factors that need to be taken into account.
If you have been in the workforce a total of two years or less, frequent job changes may or may not hurt your chances at loan approval depending on the nature of your job. Some kinds of employment require frequent job changes; contractors, temp agency hires, and freelancers understand this all too well.
And in such cases, the lender may simply require some extra documentation (again, depending on the lender and circumstances) to acknowledge the borrower is indeed a good credit risk and is able to afford the loan.
But some types of frequent job change do not help the borrower; such job changes can hurt your chances at FHA loan approval. What are these changes and why do they hurt the borrower?
Any switch from traditional employment to contract, freelance, or other non-traditional work in the year leading up to the loan application or as the application is being processed can be harmful to loan approval chances.
This is because the FHA and your lender will require a minimum amount of time engaged in such employment before you can be considered a good risk for the loan. The bare minimum in some cases (switching to commission income from a salary, for example) is one year and the length of time required may depend on how long you have already been working under such conditions.
Switching to self-employment generally requires two years as a self-employed person before your lender can consider you a good risk for the loan.
Why is this? One important reason is that the lender must show that your current income is stable and likely to continue. Without the ability to show this on paper, your lender has a much harder time justifying loan approval unless there are compensating factors, and even then those factors may or may not be enough to warrant approving the mortgage.
------------------------------
RELATED VIDEOS:
What Is an FHA Loan?
Using an FHA Loan Calculator
Meeting FHA Loan Guidelines Improves Your Chances
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