August 19, 2019
How do job changes affect your FHA mortgage loan application and chances for loan approval?
Many first-time borrowers need to know this due to personal circumstances; it’s true that FHA home loan rules require the lender to verify two years of employment and it’s also true that an FHA borrower does not have to be with the same employer for two full years to be considered for an FHA mortgage.
But what are the consequences of a job change in the FHA home loan process or immediately before a home loan application?
If the job change is an upwardly mobile move that benefits the borrower and still meets FHA loan income requirements (for stability and the likelihood of the job to continue) there should be little to no negative effect on the loan application.
But what does it mean to get an upwardly mobile job change that still meets FHA requirements?
For a start, it means not switching from a traditional job to a contract or freelance gig. If you don’t have two years of this type of employment on the record when you apply, you risk home loan approval.
FHA loan rules in HUD 4000.1 require a minimum of one to two years in many cases for freelance, self-employment, or other non-traditional work.
If you have switched to freelance or self-employed income and do not have two years on the clock at home loan application time, FHA loan rules may work against you instead of for you.
The same is true of commission work, which must be earned for at least a year before loan application time, and include the following instructions to the lender depending on how much of the borrower’s income is made with commissions:
“For Commission Income less than or equal to 25 percent of the Borrower’s total earnings, the Mortgagee must use traditional or alternative employment documentation.” That’s according to HUD 4000.1, which adds the following rule for those earning more than 25% of their income with commission-type pay.
“For Commission Income greater than 25 percent of the Borrower’s total earnings, the Mortgagee must obtain signed tax returns, including all applicable schedules, for the last two years. In lieu of signed tax returns from the Borrower, the Mortgagee may obtain a signed IRS Form 4506, Request for Copy of Tax Return,” or similar documentation acceptable to the lender and the FHA.
Changing from a traditional job to one paid via commission, or switching from an employer to self-employment, or related moves aren’t the only things covered in the FHA loan rules; if a borrower switches to an entirely new, unrelated career there may be complications depending on the timing of that job change.
If you made the change a year or more prior to the loan application, that may work in your favor, but switching AFTER you’ve turned in loan application paperwork could be incredibly risky where FHA home loan approval is concerned.
Ask a loan officer about the consequences of making such a change after loan paperwork is turned in, and how long you should wait to apply for a mortgage loan after you have changed jobs, changed the nature of your job or your income, etc. Lender standards play an important part in this area in addition to FHA loan rules.