Posted by Arjun Dhingra
In a hot job market like the Bay Area, it is common to see people at a job for a year or even less, only to get lured to a better paying job at a new startup/emerging enterprise. Some coveted professionals are seen making up to three moves inside of 24 months, with each hop being “up” the ladder in terms of post and salary. At some point, the signing bonuses and/or salaries start to beg the question – “When are you going to buy your own pad?!” Good question but not an easy answer to solve it when it comes to getting approved for a mortgage. For those that have been with their company a consistent amount of time and intend to stay put, the process of getting financing can be much easier.
When you’re applying for a mortgage loan, your ability to repay is paramount to the lender. Banks won’t make loans to a borrower with no capacity to repay, which is why employment plays such a large role in the mortgage application process. Lenders are concerned with the jobs you’ve had in the past, the job(s) you hold today, and the job you may hold in the future. They want to make sure you have a plan for your career — and that your plan is working.
Remember that, in general, a first-time home buyer that is looking to buy right out of the gates of a new/first job with a great salary likely lacks the employment depth of an experienced home buyer. A first-time home buyer may be fresh out of college or graduate school; or may be just a year or two into his/her career. In the case of a first job, a lender can evaluate what the borrower went to school (training school, college, or university) for and see if the new job is in line with what they are educated in. If so, a two year working history is not always going to be required. With a decent credit history and down payment, financing can still be obtained within the first year of a new gig, even just fresh out of school. But this is the exception (for early-career buyers). Normal underwriting guidelines call for a complete two-year history of work.
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There’s no history of pay raises or promotions with a first-time buyer, which is why mortgage lender place so much emphasis on the prior two years of employment. In looking at your last two years of employment, lenders can see whether you’re focused on a single industry or job function, which improves your chance for promotion; or whether you’re floating from position to position with no real regard for the future. For example, if you were a staff accountant in the tech industry and changed jobs to be a staff accountant in the health care field, that would considered an acceptable lateral move by a lender. However, if you left your staff accountant job in the software industry to become a human resources representative in the entertainment industry, that move would not be considered a lateral move — it would be considered a fresh start.
That said, lenders have been known to make exceptions to the “employment history” part of the mortgage application for all sorts of reasons. This is especially relevant when someone leaves the world of entrepreneurship or self employment to take a salaried post with regular W-2 pay. Regardless of the industry consistency, the move from going to predictable and stable income from something that was quite variable can be looked on favorably by lenders when reviewing financing. The same cannot be said, however, in the opposite equation. Such cases are reviewed on a case by case basis by a lender and alternative loan products are beginning to come back to market to support these types of borrowers.
In general, your lender just wants to make sure that your household income is stable, and will be ongoing for period of at least three years. If you have hopped around from job to job, or industry to self employment, etc. have our team take a look at your employment picture and history to determine the best pathway to home ownership here in the San Francisco market.
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