Applying for a mortgage with a new job

By Gina Pogol
Mortgage Credit Problems Columnist

Dear Gina, After being out of work for a couple of months, I got a job. How long do I need to work for my new employer before I can apply for a mortgage? - Bill, New York, N.Y.

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Dear Bill,

There isn't really an absolute answer to this question, although if you have credit problems, a new job is more of an issue. The Federal Housing Administration (FHA), for one, does not take a hard and fast approach but recommends the following (emphasis in bold is mine):

"We do not impose a minimum length of time a borrower must have held a position of employment to be eligible. However, the lender must verify the borrower's employment for the most recent two full years. If a borrower indicates he or she was in school or in the military during any of this time, the borrower must provide evidence supporting this claim, such as college transcripts or discharge papers. The borrower also must explain any gaps in employment spanning one month or more. Allowances for seasonal employment, such as is typical in the building trades, etc., may be made if documented by the lender.

"To analyze and document the probability of continued employment, lenders must examine the borrower's past employment record, qualifications for the position, previous training and education, and the employer's confirmation of continued employment. A borrower who changes jobs frequently within the same line of work, but continues to advance in income or benefits, should be considered favorably. In this analysis, income stability takes precedence over job stability."

In short, it's your income history, not your history with any particular job, that lenders worry about. Because you have been off work for more than one month, you will likely need at least six months on the job (for an FHA loan) and you'll need to document a two-year work history prior to your absence from the workforce.

How mortgage underwriters look at income

Here's how underwriters look at your job situation in general:

1. How is your compensation structured? If you earn 100 percent of your income as salary, it's easy for an underwriter to calculate and predict your income in the future. However, if you derive a substantial part (25 percent or more) of your earnings from bonus or commissions, you'll have to be able to show a two-year history of this kind of income for it to be counted in your debt-to-income ratios.

2. How long have you worked in your field? Your history with a specific company is less important than your experience in your industry.

3. How likely is your employment to continue? An employment verification form contains a section for your employer to indicate how likely you are to be retained indefinitely. Apart from that, your contract may guarantee your job for a certain period of time.

4. What are your prospects? Just out of college and working your first job? That won't necessarily hurt you if your industry is booming and your income likely to increase over time.

5. How's your history? People who demonstrate a pattern of repeated job hopping with no advancement have a much harder time getting approved for mortgages. And these days, those in troubled industries will have challenges too.

6. What are your compensating factors? Some items count in your favor to help overcome a recent job change. Excellent credit, strong assets (enough to pay your bills for several months if you were to lose your job), and a solid debt-to-income ratio make a recent job change less relevant.

On the other hand, if your employment history is spotty, you have barely enough saved for a down payment, your income is just enough to qualify and you have bad credit, mortgage lenders will make your new job more of an issue.

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