How Employment Changes Can Affect Mortgage Prequalification or Preapproval

Changing jobs during a home purchase doesn’t necessarily tank your mortgage application, but it can affect everything from prequalification to final approval depending on the situation. Lenders want to see employment stability to help determine your ability to repay the loan, so even positive changes in your career may require further review or updated documentation. Knowing how various employment changes are viewed, and how you can prepare for them, can help you move through the mortgage process with more confidence and avoid unnecessary delays.

How Does Employment Impact Mortgage Approval?

Lenders and real estate professionals take factors like employment history and recent pay stubs into consideration during the homebuying process, including during prequalification and preapproval. While the prequalification process typically allows prospective buyers to self-report their employment history, lenders will likely ask for more concrete documentation to prove both employment and income history once you reach the preapproval stage. They’re specifically looking for a history of consistent, predictable income that helps determine your loan eligibility and borrowing amount.

How Do Job Changes Impact Final Approval After Preapproval?

A mortgage preapproval is determined based on your financial situation, and if your employment status changes before closing, it can impact your path to final approval. Lenders always look for financial stability when reviewing mortgage applications.

A promotion, a transfer to a similar position or a new job with a higher salary may raise fewer eyebrows than a more radical career change or a gap in employment. However, if your new employment situation demonstrates less financial or employment stability, risk factors increase for your lender, and they’ll likely need to determine if your new employment structure will be stable enough to make monthly mortgage payments.

Borrowers also need to meet the income requirements specific to the mortgage program they select, as different types of loans have different rules for determining qualifying income and employment history. For example, buyers exploring an FHA loan should learn the minimum income required for an FHA loan to better understand how employment changes may impact eligibility.

Job Loss

Job loss can be incredibly difficult and can put the entire transaction on hold, but it doesn’t mean there’s no hope left. If you have alternative streams of income, a spouse or co-signer with a steady income, or other ways of demonstrating continued financial stability, lenders may be able to find a path forward.

Borrowers can also cancel their application at any point, although many consider it a last resort; cancellation won’t hurt your credit, though it could result in loss of earnest money and application fees paid thus far.

Change in Employment Type

A dramatic change in employment status such as switching career fields, going from a full-time to a part-time work schedule (or vice versa), or going from a salaried role to a self-employed position, can cause lenders to reassess your mortgage application.

Underwriters typically evaluate at least two years of employment history, so if your career change raises enough concern for your lender, they could contact your employer for additional verification of employment, request additional documentation, or require a written explanation.

Change in Income or Payment Structure

Changes in income or payment structure, even good ones, are also considered by mortgage lenders. They’ll likely need to review your updated financial information to determine whether you still meet home loan requirements.

• Increase in income: Salary increases before closing may result in additional verification from lenders, yet they can broaden the homes you can afford, improve your DTI, increase your preapproval amount, and strengthen your application overall.
• Decrease in income: Substantial salary decreases after the pre-approval stage may lead lenders to reevaluate your DTI; this could reduce the amount you qualify for or even threaten your approval status.
• Change in payment structure: Lenders favor applicants with salaried positions since they offer income consistency, so if you experience an employment change taking you from a stable salary to a contract or commission-based position, your lender might need to evaluate whether your new income meets underwriting and eligibility guidelines.

Getting a New Job

If you get a new job in the same industry, or accept a role with a comparable or increased salary, these changes won’t hurt your application that much, and may even work in your favor.

Meanwhile, if your new job is in a different industry, self-employed, or has a different pay structure, these may warrant additional review and possible delays in loan processing. If you get a new job, whether before or after preapproval, be upfront with your lender as soon as possible to review options moving forward.