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Employment Changes Part II

As mentioned previously, in most situations, a change of employment will not affect one’s ability to qualify for a home mortgage. But for others, as we will see today, the change can be the reason you do not get the loan you need to buy a new home or refinance your existing mortgage. The previous posting mentioned Salaried Workers, Hourly Workers, Bonuses and Overtime. Today I will discuss changes for those that are Commissioned Employees, Self-Employed Individuals and Part-Time Employees.

Commissioned Employees

When a large portion of a persons income is based on commissions – typically 25% or more – you as a borrower should not change jobs before buying or refinancing your home. The reasoning behind this has to do with how we as the lender will calculate your income; we will average your commissions from your current job over the last two years. If you have only been in your current job for two months, your 24 month average is going to be very low because of those 22 zeros!

To take this one step further, I think it is important to note that changing employers creates an uncertainty about your future commissions because there is no past evidence to predict the future. Although you may be selling the same thing with a similar (hopefully better) commission structure, the underwriter will still not be able to logically support future earnings.

Self-Employed Individuals (SEIs)

Here’s a HUGE tip…if you plan to change careers or become self-employed before buying a home or refinancing your existing mortgage, do not do it…until the loan has been completed.

When underwriting a mortgage, we will, again, be looking for that two-year record of earnings, just like we did for commissioned employees. Without that two year history, we cannot reasonably determine if your income will be stable for the future. Beyond that, many SEIs will include a boatload of expenses as write-offs on their tax returns – particularly in the infancy period of the business. While doing so will reduce, if not eliminate, your liability to the IRS for tax purposes, it also reduces, if not eliminates, your income for qualifying for a mortgage.

If you are considering changing from one legal entity to another, you should also consider waiting until after the mortgage loan has been secured before doing so.

Part-Time Employees

If you are paid on a part-time basis, typically via an hourly wage, you should consider sticking with your current job because the underwriters will, again, look at the two-year average to determine a stable monthly income for your part-time job. If you have not had your part-time job for two years, you may not be able to use the full amount of income to qualify for your home loan.

As with all things, there are exceptions to the rule. However, that can only be determined on a case-by-case basis. If you would like to dialogue about this further, please feel free to comment on this blog or contact me directly.

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