When a lender reviews your loan
package for approval, one of the things they are
concerned about is the source of funds for your down
payment and closing costs. Most likely, you will be
asked to provide statements for the last two or
three months on any of your liquid assets. This
includes checking accounts, savings accounts, money
market funds, certificates of deposit, stock
statements, mutual funds, and even your company 401K
and retirement accounts.
If you have been moving money
between accounts during that time, there may be
large deposits and withdrawals in some of them.
The mortgage underwriter (the
person who actually approves your loan) will
probably require a complete paper trail of all the
withdrawals and deposits. You may be required to
produce cancelled checks, deposit receipts, and
other seemingly inconsequential data, which could
get quite tedious.
Perhaps you become exasperated at
your lender, but they are only doing their job
correctly. To ensure quality control and eliminate
potential fraud, it is a requirement on most loans
to completely document the source of all funds.
Moving your money around, even if you are
consolidating your funds to make it "easier," could
make it more difficult for the lender to properly
document.
So leave your money where it is
until you talk to a loan officer.
Oh…don’t change banks, either.
The Effect of Changing Jobs
For most people, changing employers will not really
affect your ability to qualify for a mortgage loan,
especially if you are going to be earning more money.
For some homebuyers, however, the effects of changing
jobs can be disastrous to your loan application.
How Changing Jobs Affects Buying a Home
Salaried Employees
If you are a salaried employee who does not earn
additional income from commissions, bonuses, or
over-time, switching employers should not create a
problem. Just make sure to remain in the same line
of work. Hopefully, you will be earning a higher
salary, which will help you better qualify for a
mortgage.
Hourly Employees
If your income is based on hourly wages and you work
a straight forty hours a week without over-time,
changing jobs should not create any problems.
Commissioned Employees
If a substantial portion of your income is derived
from commissions, you should not change jobs before
buying a home. This has to do with how mortgage
lenders calculate your income. They average your
commissions over the last two years.
Changing employers creates an uncertainty about your
future earnings from commissions. There is no track
record from which to produce an average. Even if you
are selling the same type of product with
essentially the same commission structure, the
underwriter cannot be certain that past earnings
will accurately reflect future earnings.
Changing jobs would negatively impact your ability
to buy a home.
Bonuses
If a substantial portion of your income on the new
job will come from bonuses, you may want to consider
delaying an employment change. Mortgage lenders will
rarely consider future bonuses as income unless you
have been on the same job for two years and have a
track record of receiving those bonuses. Then they
will average your bonuses over the last two years in
calculating your income.
Changing employers means that you do not have the
two-year track record necessary to count bonuses as
income.
Part-Time Employees
If you earn an hourly income but rarely work forty
hours a week, you should not change jobs. There
would be no way to tell how many hours you will work
each week on the new job, so no way to accurately
calculate your income. If you remain on the old job,
the lender can just average your earnings.
Over-Time
Since all employers award overtime hours
differently, your overtime income cannot be
determined if you change jobs. If you stay on your
present job, your lender will give you credit for
overtime income. They will determine your overtime
earnings over the last two years, then calculate a
monthly average.
Self-Employment
If you are considering a change to self-employment
before buying a new home, don’t do it. Buy the home
first.
Lenders like to see a two-year track record of
self-employment income when approving a loan. Plus,
self-employed individuals tend to include a lot of
expenses on the Schedule C of their tax returns,
especially in the early years of self-employment.
While this minimizes your tax obligation to the IRS,
it also minimizes your income to qualify for a home
loan.
If you are considering changing your business from a
sole proprietorship to a partnership or corporation,
you should also delay that until you purchase your
new home.
No
Major Purchase of Any Kind
Review the article title "Don’t
Buy a Car," and apply it to any major purchase
that would create debt of any kind. This includes
furniture, appliances, electronic equipment,
jewelry, vacations, expensive weddings…
…and automobiles, of course.
