Starting a new job is an exciting time for professional growth. But if you’re applying for a mortgage around the same time, your new job status could affect your application.
When it comes to mortgages, lenders are serious about verifying proof of income and employment history — in fact, they’ll often require the borrower to provide a certain number of pay stubs or bank statements — so if you’ve just started at a new company, made a career change, or took the leap into self-employment, you might be concerned that this could work against you.
Here’s what you need to know.
No hard and fast rule for length of employment — just be honest with your lender
Applying for a mortgage while you’re still in the probationary period of a new job isn’t inherently a problem for lenders, says Gary Bovair, senior mortgage underwriter at intelliMortgage Inc. — though it is important for borrowers to proactively disclose this information.
“Lenders don’t categorically say no, they just need to know,” says Bovair, adding that he asks clients whether they’re still in a probationary period if they’ve been in their new job for under six months.
Lenders generally like to see two years of job history with the same employer, adds Joe Bladek, a mortgage broker based in Barrie, Ont. This gives them an indication of your commitment to your employer and tenure in your position or industry.
That said, if you recently switched jobs and have fewer than two years of experience with your current company, there are other factors that can lend credibility to your application, including the nature of your new position.
The type of job you have matters to your mortgage application
If your position is a step up on the career ladder — in terms of pay, title, or even company — lenders look quite favourably on that, Bladek says, regardless of how long you’ve been at the job. “Lenders like to see clients moving up. If we can demonstrate it’s an upgraded position in the same industry, then all of a sudden the client seems less of a risk.”
What about if you’re a recent graduate, though, and your new job happens to be your first out of university or college? Bladek says you may be able to use previous internships or co-op placements in your industry as proof of employment. That said, most lenders will probably require you to have a co-signer or co-borrower with a stable job and established credit history, such as a family member, unless you’re making a substantial down payment.
If your employment history doesn't meet the lender's minimum requirements, Bladek says the mortgage rate you're offered and the down payment requirement could be higher. Borrowers can add a co-signer or decide to go with an alternative or private lender, and accept a higher interest rate.
Otherwise, the lender will need to see an employment letter, including your start date, position, and pay details — such as whether you’re salaried or hourly and if you receive commissions. They’ll also look for two recent pay stubs, which demonstrate your income stability and year-to-date income.
How might self-employment or a career change affect a mortgage application?
Not everyone works for a company. In fact, more than 2.6 million Canadians are self-employed. A recent jump into self-employment isn’t necessarily a red flag for lenders, Bladek says, but that type of employment “isn’t something that fits within most lenders’ policies.” In this case, you’ll be asked for two years' worth of income tax returns, including forms like your T1 and notices of assessment.
You’ll also need to show bank statements from the past six to 12 months, and possibly a business licence or articles of incorporation, depending on the type of business. “Lenders at that point just want to see a client can then take on a stable income,” he says. “[They’ll] look at an average income over the two-year period instead of your most recent income.”
Making a career change into a new industry is not always seen as a concern, either. But Bovair says borrowers should clearly address this with the lender, especially if their goal is to pursue better opportunities or increased pay.
He also strongly cautions against making a job change while in the midst of your mortgage application. If you’re changing to a better title or pay, that likely won't affect things, but if you’re moving to self-employment or a significant reduction in hours or compensation, you could have your application denied.
Factors besides employment that can help you get approved for a mortgage
A good credit score will always bolster your application even if your employment status gives your lender some pause, says Bladek. As well, demonstrating a few months’ worth of emergency savings can prop up borrowers who might otherwise need a co-signer.
He also adds that if you’re applying for a mortgage with a partner who has more stable employment, is a higher earner, or has better credit than you, it may also make sense to make them the primary applicant for the mortgage.
Employment and income history is important to mortgage lenders, but it's not the be-all and end-all of your application. Whatever the circumstances of your job switch, being upfront is always the best policy.
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