If you’re in the market for a home loan, you might be wondering how your employment situation might affect your eligibility. Like a lot of things in life, this is not always a black-and-white issue. This is a contrast to in the past when lenders were more apt to deny an application if someone had made a career move recently. Verification of employment (VOE) can be a wildcard, and it’s important to understand the nuances before you get too invested in the house hunt.
As part of their due diligence in the underwriting process, a lender may ask your employer to confirm that you’re likely to hold down the job. They want to make sure you’re going to be able to make the payment every month, so this is to protect you and them. To that end, if you’ve recently lost your job or appear to be in bad standing, a bad report could spell trouble.
But it’s not always this cut and dry. For example, if you’ve had a job change recently, a lender is going to require a few articles of paperwork: an offer letter, a role change letter if you’ve had a title change and/or benefits package change, and the most recent pay stub and VOE.
Speaking of employment, hourly employees might have to clear more hurdles in terms of proving their fitness for a loan. Lenders are more inclined to approve a loan for a salaried worker because a set salary streamlines the income calculation in the qualifying process. If you’re making a move from one salaried role to another salaried role, despite a hiatus, this should be no problem for qualifying for a loan, given that you can explain the gap. The same goes for a title change, assuming you’ve remained salaried with the same company.
It gets a bit more complicated if you’ve brought in additional income, such as overtime or bonuses. If you don’t have a consistent track of this type of income, it can’t be taken into account when qualifying for a new loan. This can throw a bit of a wrench in plans for people who work in sales-focused roles. They may be able to qualify, though, if they have a base salary to report.
Bottom line? If you’re wanting to apply for a mortgage in the next year or so, consider consulting a loan officer now so you can make sure your ducks are in a row now. He or she can help guide you through any potential hurdles so you can put a plan in place to address them. It’s going to be imperative for homebuyers to get pre-approved with a lender in advance, prior to beginning the home search. For starters, this means having a lender review your financial picture to assess your ability to qualify and the right budget. Your financial health is going to help or hinder you in this context.
This is also a good time to start looking over your credit reports and checking your credit scores so you can address any problems in advance of applying for a mortgage. Don’t forget, you can check your credit reports for free annually via a few channels. As the saying goes, you can never be too prepared.
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