Why Employment History Matters When Buying A Home

There are so many factors that go into buying a home. How much money do you have saved up? What is your debt amount? Hw much money do you make each month? Can you afford the neighborhood that you’d like to live in? All of these questions are swirling around the minds of all first-time homebuyers. Did you know that how long you have been at a job is just as important as your income as a factor in getting approved for a mortgage? 

Your ability to repay is why the lender is looking at so many different numbers and factors about your financial situation. Employment overall plays a large stake in the mortgage application. Lenders will look at your past employment history along with the job that your currently have. They are also concerned with your future employment status. Your lender will get an idea of your overall plan for your career and employment through looking at your history. 

As a first-time homebuyer, you most likely don’t have the employment history of more seasoned homebuyers. Generally, most people who are buying a home for the first time are pretty young in their careers. As a rule of thumb, lenders will look at your employment history over the past two years. The lender wants to see your industry focus. Maybe you have stuck with one career direction, or maybe you have hopped around a bunch. As a hint, jumping around from job to job and field to field doesn’t look very good to mortgage lenders. Job floaters tend to appear as if they have no plans for the future. 

Good Career Moves

Staying a software engineer, but moving from the medical industry to the financial industry is an acceptable and smart move in the eyes of lenders. Yet, leaving your stable job in accounting to pursue a career in acting would not be looked upon favorably in the eyes of a mortgage lender.

It doesn’t matter how much money you have saved up, often, without employment history, a lender may not consider you as a dependable buyer. Your lender wants to see that your income is stable for a period of at least three year’s time.

Income Matters 

You won’t have the same work history as a first time homebuyer as you would if you were a bit more seasoned. When lenders look at your income history, not having a lot of work history can be a detriment to many factors. If your income is an annual salary, for example, your lender will divide that salary by 12 in order to get a monthly income. If you haven’t been at the job for a full year or took a pay cut during times of training, those numbers will be affected.

For hourly employees, overtime may be a problem as it may not be factored in with the equation if there isn’t a history of at least two years on the job. 

While it isn’t impossible to buy a home with a short employment history, it’s advisable to wait until you have some significant time under your belt before you dive into the home buying process.

How to Choose the Right Mortgage Option

Buying a home represents a dream come true for many individuals. However, to transform this dream into a reality, you’ll likely need to qualify for a mortgage.

Finding the right mortgage may seem difficult, particularly for a first-time homebuyer. Fortunately, we’re here to help you make sense of all of the mortgage options at your disposal so you can select the right option based on your budget and lifestyle.

Here’s a closer look at three of the most common mortgage options for homebuyers.

1. Fixed-Rate

With a fixed-rate mortgage, there are no cost fluctuations. This means that you’ll pay the same amount each month for the duration of your mortgage, regardless of economic conditions.

For example, if you sign up for a 15- or 30-year fixed-rate mortgage, you’ll wind up paying the same amount each month until your mortgage is paid in full. In some instances, you may even be able to pay off your mortgage early without penalties.

A fixed-rate mortgage often serves as a great option for those who don’t want to worry about mortgage bills that may fluctuate over the years. Instead, this type of mortgage guarantees that you’ll be able to pay a consistent monthly amount for the life of your loan.

2. Adjustable-Rate

An adjustable-rate mortgage represents the exact opposite of its fixed-rate counterpart. The costs associated with this type of mortgage will change over time, which means you may wind up paying a fixed interest rate for the first few years of your loan and watch this rate go up a few years later.

For instance, a 5/1 adjustable-rate mortgage means that your interest rate is locked in for the first five years of your loan. After this period, the interest rate will adjust annually. Therefore, a rising interest rate may force you to allocate additional funds to cover your mortgage costs in the future.

An adjustable-rate mortgage may prove to be a viable option if you plan to live in a home for only a short amount of time. Or, if you’re a college student or young professional, an adjustable-rate mortgage may help you pay less for a home now, secure your dream job and become financially stable by the time your initial interest rate period ends.

3. VA Loans

The U.S. Department of Veterans Affairs (VA) provides loans to military service members and their families. These loans are backed by the government and enable individuals to receive complete financing for a house. Thus, with a VA loan, an individual is not required to make a down payment on a house.

If you ever have concerns or questions about mortgage loans, banks and credit unions are available to help. Also, your real estate agent may be able to offer mortgage insights and tips to ensure you can secure a mortgage quickly and effortlessly.

Learn about all of the mortgage options that are available, and by doing so, you can move one step closer to buying a home that matches your budget and lifestyle.