When you apply for a mortgage loan, a large factor up for lender consideration is the applicant’s income and job stability. You may think it is a wise choice to take that higher income-earning job before you buy a new home but you’d be wrong.

Switching employers or becoming an entrepreneur before or during your mortgage loan application and process could be detrimental to your approval from lenders. Mortgage underwrites look differently upon applicants who make a job change because essentially it changes income levels, which may prove to be a larger risk for defaults.

Mortgage underwriters do not just look at the total amount of income an applicant brings in. They actually take a closer look at several factors concerning income. Here are the three factors underwriters consider about income:

• The amount of income in comparison to the payment obligations of the borrower

• Proof by documentation of the income amounts

• Stability of the income amount which is used as an indicator of future earnings

When you make a sudden change to how your income is earned or the amount you are earning, underwriters can not adequately account for the above criteria. Without confidence in your income, the risk of default is heightened and denial may be forthcoming for the applicant.

Why Job Changes Matter

Stability is the key to mortgage loan approvals. Ideally, underwriters want to see that applicants have been at the same job for at least two years even if you have other sources of income. If you are planning to take a new job that pays more and is in the same line of work at the old job, an underwriter may not consider this scenario as risky. If there is virtually no time lapse between the old and new job, it may be considered a continuation of the old job and making that type of change will likely not affect the loan in a negative way.

In the situation where you are out of work for an extended period of time and take a new job for lower pay in an entirely different line of work, the underwriter will not be able to prove job stability as they will consider your first day of employment as the day you started the new job. Without the two years of provable job stability, your loan may be declined. You may be able to make up for lack of stability by making larger down payments or having an extremely high credit rating.

Why Entrepreneurial Businesses Matter

If you decide to go into business for yourself before or during a mortgage loan application, you have two potential strikes against you. First, your stable employment history is now considered irrelevant. Second, your ability to document steady income as a self-employed business person may be difficult. It will also be hard to forecast future earnings with an entrepreneurial business.

With lending standards much more stringent these days, it is imperative for mortgage loan applicants to take all precautions during the mortgage process. If you have a question about how a new or different job would affect your application, speak with your lender directly. The best advice is to wait until the loan has closed before making big decisions concerning your income. If you can wait until the process is complete and the loan is finalized, you’ll be less likely to jeopardize your mortgage loan approval.