Two of the major life changes an individual can experience include buying a home and getting a new job. Here’s a word to the wise:  Don’t do both in the same year. Along with the stress and uncertainty you may experience by going through such key alterations, changing jobs before you buy a home could make it much more difficult to qualify for a mortgage loan. If this is a step you’re considering, read on to learn how your job affects buying your home.

Lenders look for constancy

When mortgage lenders evaluate your personal financial situation, they’re looking for certain elements of constancy that prove you are a low-risk borrower. They determine your risk level by checking your credit score, looking at your credit report, and delving into your life situation.

Your life situation is largely determined by your income source, which is naturally dictated by your line of work. Lenders want to ensure that you not only make enough money to pay your mortgage on a monthly basis, but that you’re also likely to retain your income over a long period of time.

When it’s okay to change jobs before buying a house

The following employment situations are likely to help you as you move forward to purchase your first home. If you’re in one of these situations and choose to switch jobs, your move is unlikely to have a negative impact on your ability to buy a house.

• Being a salaried employee. If you receive a regular annual salary that is unaffected by commissions or bonuses, your income will be straightforward from a lender’s point of view. In such cases, switching jobs prior to purchasing a home will not cause you problems as long as your new job is in the same field as your last and has an equivalent or higher salary.
• Working as an hourly employee. If your annual income is based on hourly wages and you work full-time (40 hours per week) without overtime, a lender will have a solid number on which to base your risk level. In such a case, you are not likely to be hurt by changing jobs as long as you change to a job that gives you a similar or greater income and is also based on 40-hour week wages. Alternately, you will not be hurt if you move to a salaried position as long as your overall income is equal to or greater than your previous income.

When you should NOT change jobs before buying a house

The following employment situations are less likely to produce a regular, reoccurring annual income. Given that, employers view such situations as more prone to risk and generally will not look favorably upon a mortgage loan application unless you’ve been in one of these situations for two or more years.

• If you’re self-employed. If you’re self-employed, lenders will want to see two years’ worth of earnings before considering your mortgage loan application. They’ll generally use your tax return as proof of your income. Unfortunately, tax returns for self-employed individuals often have significant tax deductions because of self-employment costs. While these tax deductions lower your overall tax liability, they also lower your total annual income (from a lender’s perspective, anyway). Given this, it’s unwise to switch to self-employment before buying a home. If you can’t wait to make the job switch, know that you’ll have to wait to buy a home till you have at least two years of tax returns that show a decent income.
• If you work on commission. If a sizeable chunk of your annual income comes from commissions, don’t change jobs before buying a home. This is because mortgage lenders will average the commissions you’ve earned over the past two years in order to qualify your income for a loan. If you change employers shortly before buying a home, you will not have a track record with your new employer by which to average your commissions. This holds true even if you switch to a job where you sell the same product under the same commission structure. An underwriter has no way of guaranteeing that your earnings through another company will be repeated at your current company.
• If you work part-time. Avoid changing jobs before buying a house if your income is based on part-time wages. Moving to a new job where you’ll work part-time does not provide the necessary track record of hours-worked-per-week that lenders like to see. This gives them no way to accurately predict your income. Instead, if you’re ready to buy a house you’re better off staying in your current part-time job so your lender can average your monthly earnings.
• If your income is based on bonuses. Just like a commission-based income, a bonus-based income must come along with a track record of earnings. If your income comes largely from bonuses, a mortgage lender will calculate your income by averaging your bonuses over the last two years. If you change employers before buying a house, you forfeit your two-year track record and effectively cancel out all bonuses you’ve earned as being part of your income.