How resigning from job may hamper homebuying plans
If you joined the Great Resignation in the last year, you may have found it even harder to compete in the already wild pandemic housing market. A record number of Americans quit their jobs in 2021, according to the Bureau of Labor Statistics, and while it was a liberating experience for many, it added a layer of complexity for resignees who were also trying to secure a mortgage.
It’s not impossible to quit your job and still get to closing, but any big life changes during the process do make your mortgage application more difficult.
Employment history is one of the key indicators mortgage lenders consider when evaluating your application.
“Employment and income are the two most important factors that lenders consider,” says Marsha Barnes, a certified financial social worker and
founder of The Finance Bar. “Lenders simply want to know that you can afford the monthly payments and that you can consistently pay them on time.”
Any changes to your employment situation can make lenders wary about your ability to pay,
though not all employment changes are created equal, and lenders will be more concerned about certain kinds of job shifts.
Ace Watanasuparp, national director of Strategic Sales at Citizens Bank, says that lenders generally view applicants more favorably if they switch between similar lines of work, or at least continue to file W-2 tax forms, rather than shifting to self-employment with 1099 filing.
Buying a house doesn’t preclude you from ever switching careers, but it does mean you should think strategically about your priorities.
“If you are someone considering quitting your job, what do you really want for your life over the next year or two?” Barnes says. “Reevaluate the timing of you leaving your job” if buying a house is the more important goal.
While you may only need your first paycheck or a few months under your belt to show employment history at a new company, most lenders will want to see a minimum of two years of tax returns as proof that a new business is sustainable if you quit to strike out on your own.
“For many employers, even if you are going to another job that’s paying you more, often you’re on a probationary period,” Barnes says. “If you think like a lender, those are all things that come into play if they are considering getting you a mortgage.”
More broadly, Watanasuparp says, it’s not a good idea to make any major lifestyle changes while you’re applying for a mortgage. “First and foremost, I always tell all of our clients, if you’re looking to buy a home, stay put. Don’t go out and build debt, don’t go out and get a car loan while getting a mortgage. You want to show the bank stability.”
If you quit your job and are still moving forward with a mortgage application, reach out to your loan officer as soon as possible to strategize.
“You are required to make the lender aware that you have quit your job, even if it’s during COVID,” Barnes says.
Watanasuparp agrees that it’s crucial to disclose everything about your finances to your loan officer, and adds that your loan officer can help you develop a strategy to keep moving your application forward in many cases.
“Be as transparent as possible with your loan officer,” Watanasuparp says. “If you quit your job and you have something lined up, we may be able to help you.”
Providing documents like your offer letter, new pay stubs, proof of any bonuses or other financial ballast can keep your mortgage application going even as you switch careers.
No matter your life situation a few basics will always apply. One key factor in any mortgage application is your credit score. The higher your score, the stronger a candidate you will appear to lenders, and the lower your interest rate is likely to be.
Beyond credit, having savings and generally healthy finances overall will help make it easier to take on a mortgage.