Impacts of Changing Jobs While Mortgage Shopping
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Job changes are often a sign of professional growth, but if you’re buying a home in Canada, the timing could complicate your mortgage approval. Securing a new role often comes with exciting new opportunities, such as better pay, a work-life balance, and further career growth.
However, if you’re in the middle of buying a home or applying for a mortgage, changing jobs can throw a wrench in your homebuying plans. Lenders care deeply about income stability. They don’t just look at how much you earn, but how consistently you’ve been earning it. A well-timed career change might improve your long-term finances, but depending on the timing, it could also delay your mortgage approval.
Key Takeaways
- Changing jobs can disrupt mortgage approvals due to concerns around employment stability and income.
- Lenders require income stability, typically requiring at least 2 years of verifiable income in the same role or industry.
- There are strategies to protect your approval, including timing the switch until after your mortgage funds.
Why Lenders Care About Employment Stability
Lenders and mortgage insurers want to see a steady, predictable income. A strong employment history provides confidence that you can meet your mortgage obligations. When you change jobs, even with a higher salary, you may introduce uncertainty. Lenders typically prefer borrowers who have been in the same role or industry for at least 2 years.
A job change during the application process may require the lender to re-verify your employment and reassess your risk of default. This is particularly true if the new role includes a probationary period, involves variable pay, or significantly changes the nature of your work. Lenders want assurance that your income is both sustainable and reliable.
Income Type Matters
Lenders don’t just want to know what you earn; they want to understand how you earn it. The structure of your income has a significant impact on how your mortgage application is reviewed and approved. Two borrowers with the same gross annual income could be viewed very differently if one earns a steady salary and the other earns variable commission. That’s why income type is just as important as the amount of income.
- Salaried (Full-time, permanent): This is the most stable and preferred income type. Lenders consider it low-risk because the income is predictable. It makes the qualification process smoother.
- Hourly or part-time: This is accepted by most lenders, but may require you to show consistent hours over a 12- to 24-month period. It can work in your favour if you have reliable hours and a relatively stable income over 2 years.
- Commission-based or bonus income: This type of income fluctuates based on performance and typically requires two years of consistent earnings, which are typically supported by T4s, alongside T1 Generals and Notice of Assessments to consider the 2-year average for commission income. This can delay approval or reduce your eligible mortgage amount.
- Contract or temporary: These are considered high-risk by most lenders. You may face higher scrutiny or have difficulty getting approved.
- Self-employed: Lenders typically require at least 2 years of business income history, recent tax returns, and a NOA (Notice of Assessment) showing no outstanding tax arrears.
The Role of Probation Periods
Probation periods often last 3 to 6 months and are typically a dealbreaker for most lenders. Even if you’re confident in your job security, most lenders will not approve a mortgage while you’re within the probationary window. Mainly, as your employment can be terminated without cause or severance during this period, it increases the lender’s exposure to default risk.
If there is no probationary period specified for your new role or addressed in your employment contract, lenders may use their lending criteria, which includes a 3-month waiting period for private industry roles or a 6-month waiting period for public service roles, as an unwritten probationary period.
What Happens If You Switch Jobs During a Mortgage Pre-Approval or Approval
Lenders verify your employment both at the time of pre-approval and confirm it once again just before final funding. If your employment status changes, your application may be paused or declined while the lender reevaluates your file. This reassessment often means you may have to have only your spouse or add a co-signer or guarantor and use their income for approval.
Once your mortgage has been approved, it is advisable to avoid changing jobs, as this would be a breach of your mortgage contract. Your income is a condition specified in the contract that was agreed upon with your signature before instructions were sent to the solicitor or notary.
Strategies to Protect Your Approval If You’re Switching Jobs
Switching jobs while applying for a mortgage is a high-stakes balancing act. On the one hand, it may lead to better long-term income, making it easier to make mortgage payments or qualify for a loan. On the other hand, it introduces uncertainty for lenders who are trying to assess your financial stability to approve your mortgage. If a job transition is necessary or already underway, there are proactive steps you can take to minimize the impact on your mortgage application.
Time the Switch Carefully
Switching to a new job, even if it’s in the same industry, before your mortgage closes can create complications. Lenders require stable employment and income history, and typically require that you have completed the probationary period before granting mortgage approval. If the job change is unavoidable, try to align it with your mortgage approval timeline to minimize any potential issues. Ideally, you should always secure your mortgage first.
Consider Alternatives
If changing jobs is unavoidable before your mortgage funds, you can consider other options, such as having your spouse or a co-borrower qualify for the mortgage alone if they can qualify without your income on the application.
Subprime or private lending may also be an option, as they often have more flexible approval criteria that can help you secure a mortgage while transitioning to a new role. However, switching from a subprime to a prime lender at your next mortgage renewal requires you to pass the stress test once again, while refinancing at higher rates.
Should You Delay Your Job Change Until After Closing?
It’s safest to delay any changes to your employment until after your mortgage has closed and funded. Lenders typically complete a final employment verification just before advancing funds. If they discover that you’ve had a change in employment, especially to one with a probationary period, a different pay structure, or a transition to self-employed status, your approval could be delayed, re-evaluated, or even revoked. Even if the new position pays more, a lack of job stability could raise red flags that could jeopardize your mortgage funding.
If you’ve already received a mortgage approval and are considering a job switch, speak with your mortgage expert before making any moves. Some lenders may accept a firm offer of employment with no probation and a guaranteed start date, but policies vary. With tighter lending rules, playing it safe by waiting until after closing can give you peace of mind and protect your financing.
When uncertain, it’s advisable to secure your mortgage approval with a confirmed start date for your new employment set at least one month after your mortgage closing. However, this must be carefully managed to avoid raising concerns with either your current employer or your mortgage lender, as it may impact employment verification and ultimately affect your approval.
Frequently Asked Questions (FAQ) About Changing Jobs During Your Mortgage Closing
What if I receive a higher-paying job offer before the closing date?
Even if the offer is financially better, lenders still require proof of permanent employment and confirmation that you’re not on probation. The timing of your change in employment matters more than the salary increase.
How does probation impact my mortgage approval?
Being on probation can be a red flag, as your employment isn’t guaranteed during the probationary period, and you may be let go for any reason without receiving severance. Many lenders won’t fund your mortgage until the probationary period is over.
Will switching from a salaried employee to self-employed status hurt my chances of getting a mortgage?
Yes, switching from a salaried position to self-employment will likely hurt your chances of getting approved for a mortgage, especially in the short term. Most lenders will require two years of self-employment income history or business income to qualify for a loan. Or, if you’re in the same role but switching from a salaried to a consulting position, the lender may consider an exemption if you have signed contracts with clients. A recent switch to self-employment will likely delay your homebuying or mortgage closing timeline.
Final Thoughts
Changing jobs while shopping for a mortgage doesn’t automatically disqualify you, but it does complicate things. Timing is critical to keep your approval on track. Whether you’re moving to a higher-paying role, switching industries, or becoming self-employed, the key is to plan ahead and understand how any employment shift can affect your borrowing capacity. A misstep in timing could cost you your locked-in rate or force you to requalify under less favourable terms, delaying your homeownership journey.
Contact nesto mortgage experts today for an assessment and planning to customize your homeownership strategy that keeps your career goals on track.
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