Mortgages - Of Jobs, Loans and Timing

The New York Times

By VICKIE ELMER

IF searching for a new job and refinancing a home are both on the agenda, you might be wondering which task you should finish first.

Mortgage experts generally recommend that homeowners complete their refinancing before making any major career changes, especially if they are planning to start their own business or become an independent contractor, in which case income may fluctuate.

“There’s no real reason to wait unless you don’t qualify” with current income, said Matt Hackett, the underwriting manager for Equity Now, a direct mortgage lender in New York City.

The job market has been steadily improving. The unemployment rate fell to 8.3 percent in February from 9.0 percent in February 2011. And data released this month from the Bureau of Labor Statistics shows that more people quitting their jobs this year are doing so voluntarily.

But depending on work history and mortgage lender, just being in the market for a new job might hinder a person’s ability to refinance or buy a home.

“If you’re actively looking to leave your job, it will impact how the bank views giving you a mortgage,” said Jason Auerbach, a divisional manager of First Choice Loan Services inManhattan. The search raises “a question mark about their future employment” and income, he added.

In addition to checking employment at the start of the application process, many lenders will verify such information as late as the last 72 hours before mortgage closing. If they learn a borrower is starting a new job in the very near future, the mortgage can be delayed or even derailed. And borrowers who withhold such information could be committing income fraud, Mr. Auerbach said.

Other lenders, however, say they make loans based on a moment-in-time snapshot of a borrower’s finances.

“As long as the time when you’re closing that loan that you’re gainfully employed in the job that you said you were, you’re telling the truth,” said Heidi Yanavich, who trains mortgage loan originators at the McCue Mortgage Company, a direct lender in New Britain, Conn.

Still, Mrs. Yanavich said, the best path is to refinance first and change jobs afterward — especially if a borrower is changing careers. “Your success in a new field is not established,” she said.

An advantage to refinancing first is that “you are freeing up additional cash flow” by reducing your monthly payment, said Jodi Glickman, the founder of Great on the Job, a career-training company based in Chicago. Some job changers may earn less at first. “They are going to be assuming more risk,” she said, pointing out that they therefore need to reduce their financial risks.

All that said, however, there are advantages to refinancing later, especially for those who might have to relocate when they change jobs, Ms. Glickman said.

A person may well get a new job with more income and responsibility, or in an especially robust industry. That may help him or her qualify for a larger mortgage, or even better terms. According to Mr. Auerbach, you could be able to borrow up to four times your annual income.

Taking a new job right in the middle of a mortgage refinancing, though, could mean extra time and paperwork. Mr. Auerbach, for one, says he will very likely want to see an employment contract or a job offer letter.

Other lenders may want you to wait. Mrs. Yanavich says borrowers may need to provide 30 days of pay stubs and have their employer verify their employment and the time frame of any probationary period.

The Federal Housing Administration, along with Fannie Mae and Freddie Mac, requires 30 days’ pay stubs if the loans are going to be insured by or resold to those entities.

If you’re counting on a future bonus, expect to be asked for a letter from your employer verifying that, too.

“Today’s lending is pretty conservative,” Mrs. Yanavich said. “Incomes need to be documented.
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