Should I Buy a House as I’m Switching Jobs?

If you’re switching jobs or plan to in the near future, you might want to know how that impacts your ability to buy a house. After all, purchasing a home is a lengthy, stressful process once you tally up the time for mortgage approval and pounding the payment to find a home.

If you’re in the middle of considering a job change, your company has transferred you to a new area or you’re thinking of starting a new business, it’s prudent to think about how that affects any home-buying plans—because, frankly, any job switch can have major impacts on your ability and plans to buy a home.

What Lenders Review When You Buy a Home

Lenders want to know you’ll be able to make your mortgage payments on any house you purchase. To that end, they carefully review a number of factors to assess your job security.

That means following the usual advice like not making any large purchases or deposits as you apply for a loan. You also shouldn’t apply for new credit, switch banks or co-sign on another loan. They’ll explore how often you’ve changed jobs and scrutinize any period of unemployment. Most lenders also give weight to:

  • The health of your industry and company
  • Your training and qualifications
  • Whether there are other jobs that fit your pay and training
  • Your work history beyond two years
  • Any increases you’ve had in pay and responsibility

They also often ask employers to confirm that employment will continue for the first three years of the mortgage. As you can see, changing jobs or job-hopping and obtaining a mortgage can be challenging.

Loan Approvals Continue Until Closing

“But,” you say, “I’ve already been approved for a loan. The coast is clear. I can switch jobs now and purchase a house with my approved loan!”

Well, not so fast. Yes, you are approved for a loan initially. You can switch jobs, and then go out and look for a house; however, be aware that the lender will also review your materials and circumstances at closing. Lenders are cautious and keen to know that those mortgage payments will definitely be forthcoming.

If you no longer have a two-year history with a firm, can no longer confirm likely employment for three years or other circumstances develop related to your job and income stability and income, it is entirely possible a lender will reject the loan.

If you have a loan guaranteed by the United States Federal Housing Administration (FHA), for example, which allows low down payments, it can reject a loan even after approval. So it can be risky to start the home-buying process if you plan to switch jobs.

Factors to Consider: When Job-Switching Would Have No Impact

That said, there are circumstances where job-switching would not derail your plans to purchase a home. If you change jobs but are still in the same industry, the lender will review your materials, but it is not likely to stop a loan. This kind of move shows the stability lenders like to see.

If your pay and benefits increase in the same line of work and industry, that would be fine with most lenders. In fact, it can increase the size of the loan for which you are eligible. Here, too, there will be a period when lenders require documentation on the new position, and they will ask your employers about the three years of expected job stability. If you plan to switch jobs during the home-buying process, it’s a good idea to let your lender know.

Factors to Consider: When Changing Jobs Would Have a Negative Impact

If you change to a job with lower pay, however, even if it is in the same line of work and industry, it might negatively affect your chances of obtaining or keeping a mortgage. The negative effect on your income is considered a sign of instability.

Similarly, if you switch your job title significantly or move into an entirely different line of work, you may have difficulty obtaining a mortgage until you have two years of history. So if you were a teacher and become a baker, getting lender approval might be challenging.

Lenders Get Nervous When Salaries Shift

Changes in the salary structure of a job may have hurt your chances of securing a mortgage, as well. If you move from a salaried (W-2) position to one where you will receive commissions, lenders may get nervous.

Why? Because commissions are variable income rather than stable. Most lenders require a 24-month history of any position that has variable pay, even if a commission-based job is likely to give you a higher income than a salaried one.

So if you are currently a tech support person and switch to technology sales, you will likely have to wait at least 24 months before a lender will approve you for a mortgage.

Similarly, if you move to a contractor or consultant role from a salaried position, you will need 24 months of income before a lender will consider you for a mortgage. Contractor and consultant income is not as stable as salaried income.

If your job switch involves starting your own business, you also would likely not secure a mortgage. Your lender will want to see at least 24 months of results on your business before making any mortgage decisions.

Consider the Possible Drawbacks of Switching Jobs While House Hunting

Buying a home while switching jobs can be challenging, because lenders require both income and job stability to approve a mortgage. Lenders will also check with employers to see if continued employment is likely during the first three years of a loan.

Bottom line is: if you suddenly make less money, move to a different line of work, change salary structure or start your own business, you will likely need 24 months of stability before buying a home becomes feasible.

By Megan Wild, RISMedia’s Housecall

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For Buyers, Credit Matters—but How Much?

Borrowers not as creditworthy as others often have higher mortgage payments; in fact, according to an analysis recently released by Zillow, the average borrower categorized with credit as “fair” can be on the hook for $21,000 more than a borrower with an “excellent” score.

Here’s how: Borrower A has a credit score that’s stellar (“excellent”), and obtains a 4.50 percent rate. Borrower B has a credit score that’s less than stellar (“fair”), and obtains a 5.10 percent rate. If both have a 30-year mortgage and a home with a median price tag, over the course of the loan, Borrower B has $21,000 more to pay than Borrower A.

Across the largest markets, the differences vary:

Zillow_Credit_Scores

“When you buy a home, your financial history determines your financial future,” says a senior economist at Zillow. “Homebuyers with weaker credit end up paying substantially higher costs over the lifetime of a home loan. Of course, homeowners do have the option to refinance their loan if their credit improves, but as mortgage rates rise, this may be a less attractive option.”

Mortgage rates have risen since the start of the year, recently hitting a point not seen since 2011, according to Freddie Mac.

For more information, please visit www.zillow.com.

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How to Ensure You’re Buying the Perfect Home

For most people, buying a home is the biggest investment they’ll make in their life. Not only is it a huge financial undertaking, but your final choice is a decision you’ll be living with for the foreseeable future. The process may sound daunting, but by taking the right steps, buying your perfect home doesn’t have to be stressful.

What Is a Perfect Home?

The first step to ensuring you’re buying your ideal property is identifying what “perfect” means to you. It may sounds obvious, but the easiest way to start is by making a list of your priorities. What is a “must-have,” what would be nice and what isn’t important? If you’re buying with a partner, make sure you compare lists and decide what can be compromised on and what will be the deal-breakers.

Experience is key here—we’ve all lived in places that at first glance we thought were suitable, only to find out later that the kitchen we initially thought was cozy was actually far too small for our needs, or that the seemingly bright living room only gets direct sunlight for a few hours a day. Don’t be afraid to ask friends and relatives about their experiences either, as they may be aware of something you hadn’t thought of.

What Can You Really Afford?

Before scouring the market for your ideal property, you need to know what you can afford.  By getting pre-approved for a mortgage first, you’ll know exactly how much you can borrow based on a professional assessment of your finances. Ultimately, this will make the whole process much easier. A trap that many buyers fall into is assuming that the maximum amount they can borrow is what they should spend on their new house. Look at what your monthly repayments would be and ensure that your budget factors in all ongoing maintenance costs, any fees you may incur from the buying process and any improvements you may want to make in the future.

Your budget should also allow you to put funds aside each month for emergency maintenance. If your heating system fails one winter, do you have the savings to fix it? Lastly, think about any potential changes to your income you may face in the next 5-10 years, how they could affect your ability to make payments, and whether there are any safeguards you can put in place.

Choosing Your Professionals

Purchasing a home can be extremely difficult without assistance from industry professionals; having the right team can be the difference between a smooth buying process and a costly disaster. Hiring a real estate agent provides numerous advantages. An experienced REALTOR® can find properties that you may otherwise miss, negotiate prices and recommend lenders. They’ll also be able to answer any questions you may have about a property, as well as any you may not have even thought to ask.

When it comes to lenders, be aware of the different types of loans available to you and how they can impact your long-term finances. Just because one lender is prepared to loan you more money doesn’t necessarily mean they’re your best option.

Location,

It’s not uncommon for buyers to find their perfect home, only to discover too late that the area it’s in is far from ideal. Take note of what you like about your current neighborhood and what you would change, and bear this in mind when scoping out potential locations. Take the time to explore the two-mile radius surrounding the property. Drive around in the daytime and at night. Would you feel safe and comfortable walking around the neighborhood at these times? Test your commute between the property and your workplace during rush hour. Could you do it every day?

You can even spend a Saturday afternoon driving through the neighborhood, asking your potential neighbors how they feel about the area.

Finally, remember that just because certain aspects of the location won’t affect you, it doesn’t mean they won’t be important to someone else if you decide to sell the property in the future. Even if you don’t have children, being in a good school district can add up to 20 percent to your house value.

Do Your Homework

Carrying out thorough research on a property and area before you buy can take time and money, but the benefits far outweigh the cost. Look at general property values in the local area and study how they have changed recently. What are similar homes in the neighborhood selling for? This will help you decide whether the asking price is fair and could indicate what may happen to the value of your property in the future.

A professional home inspection will cost a few hundred dollars, but could end up saving you thousands in the long run. If they find any potential issues with the home, you can request the seller makes repairs on the property, or use it as a bargaining tool to lower the price (and cover any costs the repairs may cost you). It’s also worth having a map of the property; a survey of the land means you’ll know exactly what you own, which can resolve any possible border disputes should they arise.

Buying for Tomorrow

A perfect home isn’t just for now; it’s for the future, and there are two ways to look at this. Firstly, it’s important to visualize whether you can see yourself living and growing there. Try and imagine yourself and your family in each room and whether it feels “right.” You also need to look for the potential in the property if you decide to expand or refurbish parts of it. You might not be planning to do this anytime soon, but it’s important to know you’ll have the option later on.

The flip side to this is remembering that a dream home is something you build yourself. Don’t get put off  by superficial things like the color of the walls or the shade of the carpets. In the long run, these things can be changed relatively inexpensively. Not all houses are going to be in the best condition when you see them, but, with remodeling, you can add your own style and touch to a home and truly make it yours. Remember that houses are generally not perfect to begin with, and there will always be things that could be different. If you’re flexible, it’s easier to move in and start creating your dream home.

by: Eliot Ward, RISMedia’s Housecall