Changing jobs is a significant life event, and if you’re looking to buy a home around the same time, you might wonder how your employment transition affects your mortgage application. Whether you’re moving within the same industry or embarking on a new career path, understanding how lenders view your employment status is crucial.
This article highlights what will bear most importance to lenders upon applying for a mortgage, after a job change.
The Nature of Your New Job and Contract
In the eyes of a lender, the nature of your new employment—be it permanent, contract-based, or temporary—plays a significant role in your mortgage application. Permanent positions are often viewed more favourably because they suggest job security and a steady income. Contract roles, while common in many industries, can be seen as less stable, although consistent contract renewals in the same field can mitigate this concern.
If your new role includes a probation period, as many do, lenders might proceed with caution. This probation signifies a trial period during which your employment is less secure. However, this doesn’t automatically disqualify you from getting a mortgage. Some lenders are willing to consider your application if you have a strong employment history and financial standing, or if you’re moving to a higher-paying role within the same industry.
The Importance of Employment History
A solid employment history signals to lenders that you’re a reliable income earner. If you’ve frequently changed jobs or have significant gaps in your employment, lenders might question your job stability. However, moving upwards in your career, even with changes, can be seen positively, as it often leads to higher income and better job security.
When you’ve changed jobs recently, lenders will look at your overall employment history to gauge your reliability. Longevity in previous positions, especially within related fields or industries, can bolster your application.
Loan Amount and Affordability
The amount you wish to borrow is a crucial factor in your mortgage application. Lenders use a loan-to-income ratio to determine how much they’re willing to lend you, typically capping this at 4.5 times your annual income. If you’ve moved to a higher-paying job, this could potentially increase the amount you’re eligible to borrow.
However, your new job’s nature and your probation status can also influence this calculation. Lenders assess affordability based on your income stability, so a well-documented history of income and employment can support your application.
The Role of Credit History
Your credit history is another vital component of your mortgage application. It provides lenders with a snapshot of your financial reliability. A strong credit score, built through on-time payments, responsible credit use, and a history of managing debt effectively, can significantly enhance your mortgage prospects.
Before applying for a mortgage, it’s wise to check your credit report and address any discrepancies or outstanding debts. Improving your credit score can take time, so this should be a part of your financial planning well before you intend to apply for a mortgage.
General Advice for Success
Here are some strategies to improve your chances of mortgage approval after a job change:
- Wait Until After Your Probation: If possible, consider waiting until you’ve successfully completed your probation period before applying for a mortgage. This can increase lender confidence in your job stability.
- Prepare Your Documentation: Gather all necessary documentation, including proof of employment, salary slips, and any employment contracts. This helps to demonstrate your financial stability and readiness for a mortgage.
- Consult Professionals: Speaking with a mortgage advisor or broker can provide valuable insights tailored to your situation. They can guide you to lenders more likely to accept your application given your recent job change.
Conclusion
Changing jobs doesn’t mean you have to put your homeownership dreams on hold. By understanding how lenders view your employment status, preparing your financial documentation, and possibly waiting until you’re past any probation period, you can enhance your mortgage application’s attractiveness.
Always remember, each lender has different criteria, so it pays to shop around or work with a professional who can guide you to the right lender for your unique situation.
Navigating the mortgage application process after a job change requires careful planning and consideration. Still, with the right approach, you can secure your home loan and move forward with buying your dream home, regardless of your recent career moves.
If you’d like help with an Agreement in Principle (AIP), your mortgage application, or protection products available, contact one of our friendly mortgage advisors who would be happy to have a chat and help guide you through it all.