You've Been Warned: This Major Life Change Could Jeopardize Your Mortgage Approval

When buying a home, one of the more obvious mistakes people make is not seeking preapproval for a mortgage. Going through the preapproval process ensures you understand the mortgage amount and options you qualify to receive while also establishing that you are credit worthy. But even if you've received preapproval, you still have to be aware of potential mistakes. One such error is changing jobs or quitting working after getting preapproved and while you're in the process of closing on a house. 

Even though younger workers are more likely to switch jobs than their older counterparts, anyone, regardless of age, should avoid timing an employment switch while trying to purchase a home. Doing so could delay the process because you'll have to submit additional documents to once again verify your financial situation and creditworthiness. In one of the two worst-case scenarios, the lender may rescind the mortgage approval. In the other, the delays could cause the seller to walk away with your earnest money. If you're seeing signs that you're ready to buy a house, such as getting a solid credit score or having enough money for a down payment, you might still want to hold off on the house search until you've stabilized your job situation. 

If you change jobs in the middle of closing, the lender might decide against giving you a mortgage. This could happen if you switch from a salaried job to one based on commission, for example, as the lender may lose confidence that you can repay the mortgage under your new employment terms. If the original lender cancels your preapproval, you will have to restart the borrowing process with a new one, which is risky and could leave you unable to afford a home altogether. In a less extreme scenario, the lender could decrease the loan amount, which could place your dream home out of reach.

Why do mortgage lenders care if you switch jobs if you're still earning a similar amount of money? Many employers place new employees on a probationary period that could last several months, meaning you have an increased risk of being terminated. Some lenders will want to see multiple pay stubs from the new employer before moving forward with the loan, which could require several weeks. And that's time you won't have to spare if your closing date is fast approaching.

To avoid problems, avoid switching jobs until after you finish the closing process. Note that being "cleared to close" is not the same thing as actually closing on the home. If you have no choice but to switch during closing, ask your new employer for a letter of employment that doesn't specify a probationary period. Likewise, stay away from making large purchases that require financing during the sale, as these could also sink your mortgage approval. 

If you received a preapproval for your mortgage before you made a job change, you'll have to keep your lender informed throughout the job-switching process. Even if you are only considering changing jobs — for example, if you get an attractive offer — you must be forthcoming with them. Lenders need to verify the stability of your job and your income before they fund the mortgage. A job switch might change the loan amount you qualify to receive based on your new income level, and the lender needs to know this as soon as possible.

In an extreme circumstance, this employment and income verification could severely delay the closing process. Since you would be at fault for this delay, the seller would have the right to back out of the sale and accept a different offer. If the sale falls through because you missed the closing date, the seller might keep your earnest money and pursue legal action to recover other costs.

Hiding your employment situation from the mortgage lender won't work. These professionals seek verification of employment and income through various channels multiple times during the process, including during preapproval, upon loan origination, and just before closing. If the mortgage lender finds out about the job change by pulling reports instead of having an honest conversation with you, it could affect how the bank views your reliability as a borrower or delay your ability to close.