Unless you are one of the fortunate few, you are going to need financing to buy a home. One of the things that is looked at closely by lenders is your employment.
How Your Job Impacts Your Ability To Get a Mortgage
When you are ready to buy your first home or move up to a bigger, better property, you need to consider your financing options. While many things go into finding the best loan, most people are first concerned about actually being approved for a loan. One of the factors that is critical when an underwriter analyzes your loan application is your employment status. Mortgages are all about risk in the eyes of a lender. Your employment status is a huge factor in evaluating that risk.
When we talk about employment, we are going to focus on the three most common categories. The first is the salaried employee who receives the same earnings each month. The second is the self-employed person who owns their own business and has fluctuating revenues. The third is the commissioned person, a salesperson, who also receives fluctuating revenues based on their production each month.
Salaried employees are the simplest for lenders to evaluate. The annual earnings of this person are a set figure. Lenders are very comfortable with this designation because they can accurately predict the money you have coming in relation to debts and so on. In general, lenders are looking for stability in employment with a two-year history. If you have changed your job, make sure to explain why and try to stay in the same general profession.
Self-employed individuals are in a bit more of a bind when it comes to mortgages. If you are in this designation, you tend to show a range of earnings versus a steady amount each month. Moreover, you also tend deduct just about everything you can to limit taxes. This can cause problems when you apply for a loan because your reported income is low. If you are self-employed, lenders are going to want to see tax returns, bank account statements and other financial documents for the last two years. If at all possible, do not switch your business effort to a new line of work during this two-year period as the lender will consider it a brand new business and raise its risk assessment.
Commissioned employees are more and more common these days as corporate culture changes. If you fall in this designation, the good news is lenders are much more comfortable with commission earnings these days. As with self-employed individuals, however, it is important that you do not change your job in the two years prior to applying for the loan. Lenders will view such a change negatively, because they will consider your new position independently from the old one. This makes you a riskier proposition in their eyes.
If you are planning on buying a home in the next few years, stability is very important. While there are exceptions to every rule, your best course of action is to stay the course with employment before apply for a loan. You can always make changes after being approved.
Raynor James is with FSBOAmerica.org - offering information on mortgage loans for home buyers.
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