A new job always means hopes for better things. For some, it's a new car. For others, it's a new wardrobe to go with the latest title. And for others still, it's time to move on and buy a house.
Maybe it's the first home, or perhaps you are upgrading to the perfect Manhattan real estate. Either way, applying for a mortgage after you've started a new job can be tricky.
Here are a few things you need to consider.
Check Your Credit Score
Those three magic numbers can dictate so much when you are home shopping. It doesn't matter if your new job pays twice as much as your old job. If your credit is bad, you can expect to pay a much higher interest rate.
So, instead of buying a house right after you start that new job, maybe you should consider paying down some debt and cleaning up that credit. That way, when it comes time to buy a house, your interest rate won't be through the roof.
Check Your Debt to Income Ratio
Another thing lenders check when you are applying for a mortgage is your debt to income ratio. So, if your new job pays more money than your old job, you will have a better debt to income ratio.
The magic number is 43%. What that means is that if your monthly debt exceeds 43% of your gross monthly income, you are unlikely to qualify for a mortgage.
So, if your new job pays more than your old job, it may be an excellent factor in helping you get that mortgage.
Don't Rely on Bonus or Commission Income
Commission jobs are great if you can sell. But think about things from a bank's perspective. How is it supposed to know how good of a salesperson you are?
If the majority of your income is bonus or commission, lenders will fear you. And, you will likely get stuck with a high interest rate.
So, if your new job falls into this category, wait six months before applying for a mortgage. Spend those six months tracking down the appropriate paperwork that proves that your bonus and/or commission is actually stable income.
Make Sure Your New Job is a Steady-Income Job
Banks don't like to lend money to people without a steady income. So, if your new job is a business you started, you better get your paperwork in order. Most banks will not lend self-employed people money without at least two years of tax returns to prove that their income is stable.
Now if your new job is one with a steady flow of income and you've got good credit and the right debt to income ratio, you should have no problem securing a loan.
Starting a new job is, without a doubt, an exciting event. And when you've finally gotten to the point where you can afford to buy a house, there's room for celebration.
Even if it's not your first house and your new job has opened up the opportunity for you to invest in a bigger house or to move to a more affluent neighborhood or school district, there are things you need to consider.
So, before you head off home shopping on the heels of that new job, make sure you have checked on your credit, and you've determined how much house you can afford.
After all, you don't want to be house poor.