One of the main requirements to qualify for a home loan, of course, is having a job so you can pay the monthly mortgage.
Income, debt levels and credit score are all important in getting the best loan rate. Your income, however, includes more than bringing home a paycheck that makes a mortgage affordable.
Employment history is also what lenders are looking for when checking that you have a steady job. Working for an employer for at least two years, or at least in the same field for two years, is a sign that you’re likely to continue having a job. And that means a steady paycheck.
But what if you’ve recently moved to an area for a new job and you’re looking to buy a house? Can you still get approved for a home loan if you haven’t been at the same job for a few years?
The short answers are yes, given a few caveats that lenders are looking for when they underwrite loans.
Compared with low credit scores or high debt, a sporadic job history with lots of new starts in new careers isn’t as hard to overcome. Lenders offer more leeway in this area, provided you can prove a few things.
Salaried Income Is Best
A new job that pays a salary and isn’t based largely on commissions is the best way to get around only having a new job for a few months before applying for a mortgage.
Non-salaried income can include:
- Bonuses or commissions make up most of income
A salary can be shown to a lender with a few paystubs. As long as it shows you can afford a monthly mortgage payment, then you should be approved for a home loan.
Moving to a new area with the same employer is ideal. But having a steady job in the same field, such as in science or law, is fine if you’re changing employers and continue having a steady salary.
Switching job fields entirely, however, may be a little more difficult to overcome.
How To Make Lenders Nervous
If your new job pays most or all of your annual income in bonuses or commissions, then your loan application is likely to make them nervous. And it could make them especially nervous if you haven’t been in your new job for long.
Commissions can rise and fall. They may not be steady throughout the year, meaning you may have some months where your income is low and can’t afford to pay your bills. Such workers usually save for these possibilities and make their income last throughout the year.
Such workers may still get a home loan, though it might be at a higher interest rate than it would if they earned a steady salary.
Getting Around This Hurdle
Maybe your bonus or commission isn’t as steady as a regular paycheck, but it’s still relatively steady. You expect to earn regular commissions.
Showing your lender a few paystubs may resolve this. Or they may want six months of bonus income that’s stable to prove it. That’s unlikely to help you if you’re trying to buy a house now.
Self-employed workers may have the same problem with months where income is high versus others where they don’t receive much work.
Their best defense is showing two years of tax returns to show their income is stable from year to year and is unlikely to disappear anytime soon.
Other Ways To Improve Your Chances
If you’re earning enough to afford a mortgage, but a commission or bonus isn’t steady enough for a lender to approve your loan, there are other factors you can work on to improve your odds.
The simple one is to wait up to six months and then show lenders that your commission income is steady enough and that you earn a regular income. This may require renting a home or apartment during that time.
Or if your income is high enough after starting a new job, a lender may approve your loan at a higher interest rate. You could refinance the loan when it’s worthwhile.
Two other options are lowering your debts more and improving your credit score.
Your total monthly debts, including a new mortgage payment, shouldn’t exceed more than 43% of your gross monthly income. Try to lower your debts, such as by not using a credit card, and that number will fall.
Improving your credit score to an “excellent” rating should also make your application more likely to be approved.
The best way to raise a credit score is by paying bills on time. Using less than 30% of the credit available on your credit cards is another way to raise a credit score.
Do all of that and you’ll likely see easier home loan approvals and lower mortgage rates.
With a steady income, or a close to steady one, that’s the best you could ask for.