Starting new jobs and buying new houses are two big milestones in life, and each is filled with excitement about the future, as well as some anxiety about what lies ahead. As exciting as these events can be, dealing with both at the same time can significantly increase stress levels due to their potential impact upon one another.
Changing jobs while buying a house is certainly possible, and your career shift doesn’t have to negatively impact the home buying process. Before you start job-hopping in the midst of a new home construction or purchase, it’s important to know what variables do have an impact and which ones don’t.
How Does Changing Jobs While Buying a House Affect the Process?
You’ve worked hard and saved enough for your down payment, built yourself a solid credit score, and you’ve been a reliable breadwinner for years. So why does changing jobs while buying a house change anything in regards to your loan? It all comes down to optics.
Lenders are a pretty risk averse set of people, and some changes to your stable career path can be seen as a risk they don’t want to take. Some of the changes they will likely see in a negative light include:
Switching from a salaried position to a commission-based position
Switching from a W-2 position to an independent contractor or starting a new business
Moving to a new industry
Taking a temporary position
Changing jobs for no apparent reason
Changing jobs too often
Not all of these are bad things, but they include some level of risk. Any time our change involves even the perception of risk, lenders won’t look favorably upon it. On the other hand, there are job changes that are easy to explain, and most lenders will understand the importance of taking the new position. Some instances include:
Taking a higher paying position in the same company or industry
Your new job is a big step up from your current job
You’ve worked in your current job for a long time and are making an upgrade
You’re moving to a new city and need a house and job there
Any time the new job is a major step up from your old job, and especially if it pays more, lenders can understand the reason you’re changing jobs while buying a house and won’t hold it against you.
If they are satisfied that you will be able to pay your mortgage each month, there shouldn’t be a huge impact. If you’re building a home, the process looks a little different, and that can change the effect changing jobs while buying a house has on your approval odds.
Changing Jobs During Construction Loan Processing
If you’re building a house rather than simply buying and moving into an existing structure, the loan process will look a little different. Since you have no home to use as collateral, you’ll pay a higher interest rate until the construction is complete and your loan converts into a traditional mortgage. Let’s look at the construction loan to mortgage process and how that affects your possibility of successfully changing jobs while buying a house.
Different Types Of Construction Loans
Depending upon your needs, there are several different types of construction loans available to help you build the home of your dreams. Changing jobs while buying a house can get tricky, depending on the type of loan and associated construction loan underwriting procedure. Understanding the different loan types will help you plan your job change for the best possible timing.
Construction-To-Permanent Loans
The most popular type of construction loan new home builders seek is a construction-to-permanent loan. This is a two-tiered loan, basically consisting of a construction-only loan and an end loan rolled into one. The big advantage to this type of loan is that there is one application process and one set of closing costs, which saves both time and money.
It also makes changing jobs while buying a house a more realistic possibility. Since you don’t have to close on a separate mortgage after the building is complete, you have more flexibility to change jobs before you’ve moved into your new home.
Construction-Only Loans
A construction-only loan covers only the costs of building a house, including land, materials, labor, fees, and services. Construction-only loans typically have higher interest rates since there is no home yet to serve as collateral in the case of a default. You will also have to pay two sets of closing costs, so a construction only loan can get spendy when you add the second set of closing costs associated with your end loan or mortgage.
If you run into any type of financial hardship during or after the new construction closing process, securing that mortgage can be trickier. Many people with construction-only loans avoid changing jobs while buying a house for this reason. So, when do you close on a construction loan?
WHEN DO YOU CLOSE ON A NEW CONSTRUCTION LOAN?
Closing on a typical construction-only loan usually occurs when the structure is complete, or one year from issuance. Construction-only loans must be either paid in full at closing, or they can be converted to a standard mortgage.
End Loans
In the case your lender does not offer construction-to-permanent loans, you may need to apply for two separate loans. You’ll need a construction only loan to handle the construction portion of the project and an end loan to serve as the traditional mortgage after closing on a construction loan. Most people seek to avoid this and roll the whole loan into one with a construction-to-permanent loan.
Renovation Or Rehabilitation Loans
If you’re looking for a construction loan to cover the costs of a major renovation to your existing home or to make a dilapidated home fit to live in, you’ll probably be in the market for a renovation or rehabilitation loan, depending on your builders loan requirements. These loans are generally reserved for very large projects and can allow you to stay in your home or bring an old tinderbox back to life rather than purchasing a new home.
Owner-Builder Loans
This type of loan applies to capable construction professionals who are looking to build their own homes. If you aren’t a general contractor, it likely doesn’t apply. If you are a GC, you may be able to save a considerable amount of money by choosing an owner-builder loan.
Changing Jobs While Buying A House: What Lenders Look At
Whether you’re securing a construction loan or a traditional mortgage, there are some factors that weigh much more heavily on your odds of approval. Underwriting construction loans is a bit of an art and a bit of science, and understanding the art will make the science much more convincing. Here are some things that can make or break your application if you’re changing jobs while buying a house.
Why Are You Changing Jobs?
As we’ve seen, the reason for your job change plays a big part in how much it will affect your odds of securing a loan. If you’ve just decided to change career paths on a whim, that won’t look particularly great to lenders. On the other hand, if you’ve left a toxic work environment for a better paying job in the same industry, explaining this to the lender can help negate some of the negative association.
The Timing
When you choose to change jobs can have a bigger impact than why you choose a change. If you can wait until after the mortgage closing, changing jobs while buying a big house isn’t a big deal. If you change jobs in the middle of the loan application, you’ll be creating lots of headaches for you and your underwriters, so make sure you pay close attention to the timing of your new job acceptance letter.
CHANGING JOBS DURING THE MORTGAGE APPLICATION PROCESS
The most challenging time to change jobs is when you are in the middle of your mortgage application. Depending on the quality of the new job, as well as your reasons for the move, lenders may see a job change in the middle of the application process as a reckless move by an unreliable employee. It also causes the underwriters to do much more work, which isn’t generally appreciated. If you can wait, it’s best to hold off on your job change until the loan closes.
CHANGING JOBS AFTER MORTGAGE APPROVAL
If you wait until after your mortgage approval has gone through before switching jobs, you’ve still got to let your lender know about it. If there are any major red flags associated with your job change, it’s likely your lender will want to discuss it with you, and it may even cause your offer to be rescinded. Open communication is the best way to determine whether or not a job change will affect your mortgage application.
CHANGING JOBS AFTER CLOSING
Once you’ve closed on your loan and moved into your home, you’ve reached the best time to change jobs. Barring any catastrophic consequences of your career change, it shouldn’t have any affect on your loan.
Transparency
Above all else, transparency with your lender goes a long way toward securing the loan you’re after. Catching them off guard with changes to your employment status is never a good idea. If you’re thinking of changing jobs while buying a house, make sure to let the lender know why you are doing so and show them good reason that the move is not creating risk for them.
If you've got questions about securing your own mortgage or construction loan, we can help get you the answers, as well as the lowest interest rates you can find.