Getting approved for finance is tough enough without putting major hurdles in front of your application unnecessarily by changing jobs.
If any circumstances change between the date you first submit your finance application and the date of settlement of your loan, then the bank may not look kindly on your application, and in fact in most instances, will decline your application completely.
Trouble is – most people are not aware of this!
CASE STUDY: CHANGING JOBS AT THE WRONG TIME
Recently I saw a familiar case where an investor had selected a great little investment property and placed his application for the loan. Being disgruntled with his job he decided to quit and take a holiday. He planned to get a new job when he got back home, which he did. When he returned home his loan application process continued and he had to provide documents to the bank to support his income. The bank saw that he had a change in job and promptly declined his application!
If he had only just stayed in his job for a few more weeks until the loan application was finalised, he would now be the sitting happily on his first investment property.
I see this same scenario happen over and over and I want you to avoid the same thing happening to you!
(Even real estate agents will tell you not to change jobs when you are in the process of buying property.)
TIMES HAVE CHANGED
In days gone by, investors didn’t have to think about this so much because it was common that the career you went into as a 16 year old was the same career you had when you were making all of your loan applications as an adult.
Today the world is a different place. People are less likely to remain in situations that make them unhappy, especially jobs. Many employers demand more of employees, longer working hours and less gratitude for work done. It’s not uncommon for employees to change jobs multiple times in their working career.
Of course, the long term purpose of helping you to build wealth through property is to no longer have to rely on an employee status for income. But, in the meantime, initially you need your job to support the serviceability of your loans.
ARE YOU A RISK TO THE LENDERS?
Lenders look more favourably on borrowers who have a reasonably stable recent employment record. They prefer you to have had at least six to twelve months or more in your job, receiving regular income.
Lenders like to be reasonably sure the borrower has a reliable future income based on their current income. If they see a borrower has been changing jobs over a short period of time, there is just not sufficient evidence to back up their financial stability.
Equally high risks to lenders are borrowers who have gaps or breaks in their work history or have had a change in pay structure. For example, if you move from a salary to a position that is commission based, you will be tagged as a higher risk. This will occur even if your new employment conditions provide you with a higher income.
Moving to a commission based employment arrangement will be considered along the same lines as someone who is self employed. That means, you would have to prove a two year history of your new income levels before that additional income can be included in a loan application at all.
WHAT TO DO IF YOU HAVE CHANGED JOBS
If you have had a job change, no matter what, a lender is going to need the following things from you — and your employer — in order to approve a loan application: an offer letter for the property purchase, a role change letter if you have a title change and commensurate compensation package change, and the most recent pay stub and verification of employment.
It’s not all doom and gloom…..
If you have just changed jobs – don’t be tempted to do nothing expecting that you’ll have to wait for time to pass. Every lender views all circumstances differently. A good broker will be able to match you up with a bank that will look most favourably on your conditions.
Other circumstances that can also affect the loan approval process for you are:
- Not being honest about your financial position
- Not including all your expenses
- Get the paperwork details right first time
- Understanding your borrowing capacity before you place a formal approval
- Shop around to get matched with the best lender for your circumstances
- Be prepared for additional loan costs
A FINAL ROUNDUP
If you are looking to be changing jobs around the same time you are looking to buy a property, seriously consider doing just one or the other. Stay in the same employment at least until you have the mortgage.
If you already have a mortgage commitment and are determined you’ll be changing jobs, ensure you have enough money saved to cover mortgage repayments and lifestyle costs for a few months or even more, in case things don’t work out.
I hope these tips help you be more prepared when you are ready to apply for mortgage funds.
Thoughts, questions? Leave a comment & let’s talk…
Here’s to your success!
p.s. At the very least, consider getting yourself a complimentary Financial Health Check just by contacting me here. It’s a great way to see how much you can borrow in your current circumstances.