Posted by Christine Baker on July 25, 1997 at 14:52:25:
1) If you change jobs between mortgage approval and closing, what obligation do you have to the mortgage company and what rights do they have in terms of withdrawing their approval or changing the terms of the mortgage?
Lenders usually call the employer to verify continued employment just before FUNDING. Any change in employment status will result in having to re-qualify based on the new position/income. If the lender finds out through the verification phone call that you quit, they will probably decline the loan.
2) What if you changed jobs shortly after closing, but continued to make every payment on time?
After closing you can do whatever you like. The promissory notes *I* have seen usually call for upkeep and paying property taxes etc. I have yet to see one requiring the lender's permission prior to changing employment.
3) How much worse is becoming self-employed than getting a different permanent job in either of the two above scenarios? We would be willing to put some money into escrow for a few years to cover the mortgage payments in case we did run into trouble, but would not be willing to keep this up for the entire life of the mortgage (30 years).
Most lenders AVERAGE self-employment income for the previous 2 years. If you made $6,000 in one month, your qualifying income is about $250. Lenders use the NET business income (Sch C) from page 1 of the 1040 (with some adjustments for depreciation etc.) Some underwriters may just not use any of the income.
If you change jobs in the SAME LINE OF WORK the new salary is used. I had a borrower start a new job just before application and then move to a another new job before closing. I was a little worried, but she stayed in the same line of work and the move made sense. We had no problem closing on time. Different line of work = more problems, most likely decline!
Commission income is calculated similar to self-employment. The underwriter wants to see the federal tax returns and will usually deduct the employee business expenses from the income.
There are "stated income" loans with no verifications of employment. Be careful, many of these loans require that you sign the IRS form allowing the lender to receive a copy of your tax returns directly from the IRS. When you sign the standard FNMA loan application you do sign under penalty of perjury.
Syndicated writer Bob Bruss reported that the government confiscated a home in So Cal because the Borrowers had lied about a second job on the application. Supposedly they were making their payments on time and had obtained a Quick Qualifier with Great Western.
If you can't qualify, get a "leave the income blank" loan. The rates are a little higher, but you won't have to lie. Excellent credit and a 20% to 25% down payment are required.
Only "hard money" lenders would make special arrangements such as holding future payments in escrow, as the loan couldn't be sold on the secondary market. Keeping the job until after closing is the easiest solution.