Along with our red-hot housing market and historically low Canadian mortgage rates, another trending topic in the news and in conversations around the country is the recovery of the job market. While the pandemic initially caused massive layoffs, today many job seekers find themselves in a position of strength, with more and better job opportunities. But can you risk changing jobs if you’re also in the process of buying a house? The short answer? Yes, you can, but there are a number of important considerations to keep in mind when doing so.
What to consider when changing jobs before buying a house
First of all, what is the nature of the job you’re thinking about taking?
- Is the job in the same industry? If the job is in the same industry you’ve been working in for at least two years (and that industry is relatively healthy), changing jobs will likely not have a negative impact.
- Does the new job pay the same or more than your current position? If your salaried compensation is going to remain the same or increase, it shouldn’t overly affect your ability to get a good mortgage rate.
You also want to think about what your own work history is. Have you made frequent lateral career moves? Unlike promotions or job changes that are clearly a sign of professional advancement, frequent lateral career moves can make you appear to be a greater risk for lenders due to a lack of stability in your employment history. Lenders will want to see at least two years of employment history, so bear that in mind.
What you’ll need to show your lender
It’s important to be up-front with prospective lenders about your career plans. That way, they can work with you to find the right mortgage and give you the best advice for your situation. If you’ve recently started a new job and are looking to begin the pre-approval process, you’ll need supporting documents to give your lender confidence that you’ll be able to afford the mortgage that you want:
- An offer letter: Lenders will definitely want to see the offer letter, which should contain your salary information and the nature of your employment.
- A pay stub: If you have already received a pay stub, this will provide your lender with further confidence that you are not a risky lending prospect.
- An employer’s letter of recommendation: Having your employer provide your lender with a letter of recommendation signals that your job is secure and you aren’t a risky prospect. This is particularly important if you are in a probationary period at your new job.
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What could hurt you when looking to buy a house
Just as important as knowing what will help you is knowing what could have a negative effect on your ability to get the mortgage you want. Some key factors to consider:
- Is your new salary lower? Even if your new position offers you generous compensation in the form of bonuses and commissions, to a lender this compensation is not guaranteed and thus you are seen as having fallen into a lower income bracket (and consequently are more of a risk).
- Are you changing industries? If you are starting out in a brand new industry, lenders may wonder about your ability to retain your job, and you will likely appear to be a risker prospect for them.
- Does your new job have an extended probationary period? In the eyes of your lender, you don’t really “have” the job until your probationary period is over, as you can be let go for any reason during that time. Thus, if you are in a probationary period, lenders may view you with greater caution. In this case, a letter of recommendation from your employer will likely go a long way to addressing your lender’s concerns.
In addition to all of the above, it’s critical to think about where you are in terms of your home buying journey as you start your new job. If you haven’t already begun the pre-approval process, while you will need to provide some reassurance to your lender, it makes matters simpler because the underwriters haven’t begun their work yet. If, however, the pre-approval process is underway or has been concluded, it doesn’t necessarily mean you’re out of luck. Rather, you will want to contact your lender right away and give them a comprehensive understanding of your situation. While you may very well have to start the pre-approval process all over again, it’s not a given. If your new job is in the same industry and pays just as much or more, lenders may still be willing to work with you. No matter where you are in the home buying process, it’s always a good idea to consult with prospective lenders to see how they would view a job change while buying a house. And if you're still feeling unsure of what to do, you can always contact one of our mortgage brokers for advice at no cost or obligation to you.