If you can't find an affordable mortgage, the Federal Housing Administration may be the solution. The FHA insures the mortgage so that if you default, the lender doesn't lose money. To qualify for an FHA loan, you have to show a steady income stream for at least three years. The FHA also wants to know that the income will continue. If you have a last-minute job change, that could be a problem.
If you're basing your income on your wages or salary, the FHA wants to know that the money will keep coming in for at least another three years. Your lender has to examine your work history and your qualifications for the job you have, then confirm that the employer expects to keep you around. If you've just switched jobs, it may be harder to guarantee any of that. If you take a salary cut, you no longer have three years of steady income.
If your new salary is good, you might feel it shouldn't matter. Not mentioning the change is a mistake, however. Since 2010, it’s been standard practice to do a last-minute review of your financials before closing. If the bank contacts your former employer, and it probably will, you’re busted. Even if you still qualify for an FHA loan with your new job, you'll have to resubmit your financial information and wait several more weeks to close. The seller may not wait that long.
Up the Ladder
Income stability is more important to the FHA than job stability. If you’ve started a new job, but it’s a promotion with better money and benefits, that’s a good sign. Switching jobs and employers, but staying within your field and getting better-paying jobs each time is also a plus. The FHA says in this case, changing jobs shouldn’t be a problem. If you meet the agency's other requirements, the underwriter should consider you a good candidate.
If you’ve just started your own business or made a complete career switch to a new field, you'll have a tougher time winning over the FHA. You can work around it if you have other income to rely on, such as alimony, VA benefits and child support payments. Another option is to pay down your other debts. Less debt may let you qualify, even with a lower income. Still, if you can postpone any career changes until after closing, that's the safest option.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.