Buying dilemma: job change matters

"My wife and I are currently considering buying a new house, and I am considering changing jobs to earn a higher salary. I have been at my current job for five years. Rather than changing jobs, I am also considering the possibility of going into business for myself. Whatever I decide to do, should I do it before or after we buy the house?"

The answer to your questions depends on how the action taken -- changing jobs or starting your own business -- will impact the way a mortgage underwriter views your income.

Underwriters look at three dimensions of a borrower's income: the amount, which must bear a reasonable relationship to the borrower's payment obligations; the documentation for the amount, which is the evidence that the amount is what the borrower says it is; and the stability of the amount, which are the indicators that the amount reported will continue in the future.

Changing jobs: Changing jobs may affect the underwriter's judgment about income stability. Ordinarily, an underwriter wants a borrower to be on the job that generates the income used to qualify for two years or more. Other sources of income, such as financial assets and rental property, are subject to their own rules.

A job change does not necessarily imply a reduction in income stability. If you change your job for one paying more, in the same line of work, and if there is no significant time gap between the old job and the new one, the underwriter will assume that the new job is a continuation of the old one. In such case, it won't matter whether you change jobs before or after you take the loan.

On the other hand, if you are out of work for four months and the new job is for lower pay and in a different field, the underwriter will view your employment clock as starting on the day you begin the new job. The presumption of income stability based on your five years of steady employment would be lost. Cases that fall between these extremes are judgment calls by the underwriter. ...CONTINUED

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