In most cases, changing employers will not really affect your ability to qualify for a mortgage loan, especially if you are going to be earning more money. However, there are certain situations where changing jobs can be disastrous to your loan application.
Salaried Employees
If you are a salaried employee who does not earn additional income from
commissions, bonuses, or over-time, switching employers should not create a
problem. Just make sure to remain in the same line of work. Hopefully, you will
be earning a higher salary, which will help you better qualify for a mortgage.
Hourly Employees
If your income is based on hourly wages and you work a straight forty hours a
week without over-time, changing jobs should not create any problems.
Commissioned Employees
If a substantial portion of your income is derived from commissions, you should
not change jobs before buying a home. This has to do with how mortgage Lenders
calculate your income. They average your commissions over the last two years.
Changing employers creates an uncertainty about your future earnings from
commissions. There is no track record from which to produce an average. Even if
you are selling the same type of product with essentially the same commission
structure, the underwriter cannot be certain that past earnings will accurately
reflect future earnings.
Changing jobs would negatively impact your ability to buy a home.
Bonuses
If a substantial portion of your income comes from bonuses, you may want to
consider delaying an employment change. Mortgage Lenders will rarely consider
future bonuses as income unless you have been on the same job for two years and
have a track record of receiving those bonuses. Then they will average your
bonuses over the last two years in calculating your income. Changing employers
means that you do not have the two-year track record necessary to count bonuses
as income.
Part-Time Employees
If you earn an hourly income but rarely work forty hours a week, you should not
change jobs. There would be no way to tell how many hours you will work each
week on the new job, so no way to accurately calculate your income. If you
remain on the old job, the Lender can just average your earnings.
Over-Time
Since all employers award overtime hours differently, your overtime income
cannot be determined if you change jobs. If you stay on your present job, your
Lender will give you credit for overtime income. They will determine your
overtime earnings over the last two years, then calculate a monthly average.
Self-Employment
If you are considering a change to self-employment before buying a new home,
don’t do it. Buy the home first. Lenders like to see a two-year track record of
self-employment income when approving a loan. Plus, self-employed individuals
tend to include a lot of expenses on their tax returns, especially in the early
years of self-employment. While this minimizes your tax obligation to the
Canada Revenue Agency, it also minimizes your income to qualify for a home
loan.
If you are considering changing your business from a sole proprietorship to a partnership or corporation, you should also delay that until you purchase your new home.
*The information contained on this page is for information purposes only and does not constitute as legal advice. Although, drawn from sources deemed to be reliable, the accuracy and completeness of the information is not guaranteed. Diane Luu or Legend Real Estate Group does not assume any responsibility or liability. Any distribution, use or copying of the content on this page is prohibited.