As we prepare to usher in 2015, many people start thinking about changing jobs. If you’re planning to apply for a mortgage in the coming year, then you may want to consider how mortgage lenders view your employment history as part of the underwriting process.
In an application for a new mortgage, transfer, or a refinance, lenders look at three years of employment history. Most of the time they are just looking to see how stable your position and the consistency of your income. Here’s how your employment history applies to different scenarios:
- Self-employed: If you’ve recently left a job to be self-employed, it could be more difficult for you to qualify for a mortgage because lenders generally want to see two years of income and tax returns. Some banks offer “stated income” loans that don’t require income verification but you’d generally need a down payment of 35 per cent or more. You would still need two years of being self-employed for a stated income loan. However, if you are putting down 35 per cent and your current field is consistent with what your experience is in, they may give you an exception. Otherwise, the lender would need to see when the company was registered.
- Salaried job: If you just started a new job, lenders usually want you to pass a three-month probationary period and be a full-time permanent employee. If you are working in the same field and get another salaried job, then you would only need to pass the three-month mark at your job to show that the job has some staying power.
- Job with hourly pay or bonus: If your pay relies on a bonus, or if you are hourly and work more than the normal hours indicated on your employment letter, then lenders will want to see a two year average of your income. I had a client who is a truck driver and because he was in his last job for over 10 years, I was able to use a two-year average, which of course included many hours of overtime. But he decided to go to another job and although he was actually working more overtime and getting a better pay, I could not use any of the extra income because there wasn’t enough history. Some exceptions can be made if the year to date is very strong.
If you plan to apply for a mortgage with a spouse who has stable employment and high enough income to qualify for the mortgage, then these scenarios become less of an issue. But a lot of clients in Vancouver need both incomes to qualify for the mortgage because home prices are so high.
When in doubt, consult a mortgage broker to see how changes to your employment or financial situation might impact your mortgage eligibility before you make the leap.