If you joined the Great Resignation in the last 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 resignees who were also trying to secure a mortgage.
It’s not impossible to quit your job and still get to closing, but any big life changes during the process do make your mortgage application more difficult.
Why quitting your job can make getting a mortgage tougher
Employment history is one of the key indicators mortgage lenders consider when evaluating your application.
“Employment and income are the two most important factors that lenders consider,” says Marsha Barnes, a certified financial social worker and founder of The Finance Bar. “Lenders simply want to know that you can afford the monthly payments and that you can consistently pay them on time.”
Any changes to your employment situation can make lenders wary about your ability to pay, though not all employment changes are created equal, and lenders will be more concerned about certain kinds of job shifts.
Ace Watanasuparp, national director of Strategic Sales at Citizens Bank, says that lenders generally view applicants more favorably if they switch between similar lines of work, or at least continue to file W-2 tax forms, rather than shifting to self-employment with 1099 filing.
“When it comes to getting a mortgage, clients really need to understand that changing your job on a macro level, that can affect your ability to qualify for a loan,” says Watanasuparp. “Once you segue into a new industry, then you’re starting from scratch.”
Why timing your resignation matters
Buying a house doesn’t preclude you from ever switching careers, but it does mean you should think strategically about your priorities.
“If you are someone considering quitting your job, what do you really want for your life over the next year or two?” Barnes says. “Reevaluate the timing of you leaving your job” if buying a house is the more important goal.
While you may only need your first paycheck or a few months under your belt to show employment history at a new company, most lenders will want to see a minimum of two years of tax returns as proof that a new business is sustainable if you quit to strike out on your own.
“For many employers, even if you are going to another job that’s paying you more, often you’re on a probationary period,” Barnes says. “If you think like a lender, those are all things that come into play if they are considering getting you a mortgage.”
More broadly, Watanasuparp says, it’s not a good idea to make any major lifestyle changes while you’re applying for a mortgage. “First and foremost, I always tell all of our clients, if you’re looking to buy a home, stay put. Don’t go out and build debt, don’t go out and get a car loan while getting a mortgage. You want to show the bank stability.”
How to salvage your application if you resign before the closing
So you quit your job in a fit of passion and are still moving forward with a mortgage application. In that case, reach out to your loan officer as soon as possible to strategize.
“You are required to make the lender aware that you have quit your job, even if it’s during COVID,” Barnes says.
Watanasuparp agrees that it’s crucial to disclose everything about your finances to your loan officer, and adds that your loan officer can help you develop a strategy to keep moving your application forward in many cases.
“Be as transparent as possible with your loan officer,” Watanasuparp says. “If you quit your job and you have something lined up, we may be able to help you.”
Providing documents like your offer letter, new pay stubs, proof of any bonuses or other financial ballast can keep your mortgage application going even as you switch careers.
Keep in mind, however, that if you quit a corporate job to start a new business, you may need to wait a while before securing a new loan.
Tips for all mortgage applicants
No matter your life situation a few basics will always apply. One key factor in any mortgage application is your credit score. The higher your score, the stronger a candidate you will appear to lenders, and the lower your interest rate is likely to be. Barnes says that her former employer, Wells Fargo, has a new tool for customers called Credit Close-Up, that helps them better understand and improve their scores.
Beyond credit, having savings and generally healthy finances overall will help make it easier to take on a mortgage. Check out Bankrate’s guide to getting a mortgage for more.
Bottom line
Changing jobs while applying for a mortgage can make you look like a riskier candidate to lenders, but that doesn’t mean it completely erases any possibility of securing a loan.
If your employment situation changes during your application, talk to your loan officer and be transparent about what’s going on so you can figure out your best option.
If changing jobs is in your control, it’s a good idea to wait until after you close on the loan if you can.
“I don’t recommend folks doing that, but if you do end up changing jobs after the mortgage closes, the banks will not pull their commitment or approval for you.” Watanasuparp says. “But before you do that, make sure you’re dotting your Is and crossing your Ts and getting all the ins and outs of the venture you’re about to embark on.”
Keep reading on Bank Rate.
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