Should You Wait to Change Jobs Until After Buying a Home?
written by: Charles M Bowen•edited by: Wendy Finn•updated: 8/15/2011
There are many pros and cons of getting a new job before a new house, but it often depends on your circumstances. Are you taking a risk, or doing the right thing? We examine why some people should not consider changing jobs after buying a house, as well as when it's a good idea to do so.
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Would This Be A Good Time to Switch Jobs?
There are many reasons to consider changing jobs, but it is important to consider the likelihood of other commitments being affected by the friction of the transition. In some cases, first time homebuyers have spent years locked into a job they were not exactly thrilled with, but stuck to in order to save up for the down payment on a home. It's inevitable then, that once the papers are signed and the deal is closed, it can be very tempting to switch jobs or even careers.
It is worth bearing in mind that, as a homeowner, you risk losing your investment (i.e, your down payment) if you find yourself unable to make the mortgage payments. Suffering a foreclosure has much longer lasting consequences than an eviction. It can affect your credit score for years, will likely result in much higher down payment requirements for any home you may want to buy in the future, and also guarantee a much higher interest rate to be levied against you in any future mortgage you may take out -- assuming you could even get one.
Even if you manage to keep up with your payments, most lenders now require several months of proof-of-employment before they approve a loan or a credit card, so a person with two months on the job is unlikely to get approved. It is for these reasons that many people may find it too risky to take even the slightest chance of enduring a period of unemployment. The risks are different depending on which line of work you’re in. If your job is in high demand or you are a professional like a doctor or a lawyer, then it is more likely than not that your new job will pay better than the one you passed up before. For less-skilled individuals, giving up a job where you have accumulated a significant amount of raises and benefits over time in favor of a new opportunity may lead to a temporary decrease in earnings while you re-establish yourself.
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Things to Prepare For In Case You Make The Change
Getting a new job straight after buying a house is one of those decisions that very much depends on your individual circumstances. Of course, sensible reasons do exist for switching jobs soon after buying a home. If your old job is very far away from your new address it would make sense to seek a similar job, or even an improvement closer to your new address. If you're being forced to change jobs, need to change jobs for a sense of well-being, or even retention of your sanity seems to point in favor of securing a new job, then there are a few common sense tips to minimize the risks involved in changing jobs after buying a house.
The most obvious of these is not to storm into your boss’s office and announce that you will be seeking greener pastures before you have secured your new job. If you quit your job, remember that you are not as eligible for even the miserly unemployment benefits currently available. Of course, once you have your start date with your new employer and the ink on the contract has dried, then by all means feel free to storm out and take a breather for a few days.
Even when taking the sensible precaution of securing a replacement job, there are still some precautions that should be taken. Securing a new job provides no guarantee of keeping it. If you work in an industry with systemically high turnover rates such as sales, you may find yourself washing out of your new job before you have even accumulated any unemployment benefits through it! It is therefore a sensible precaution to stockpile at least four months worth of mortgage payments in your bank account before switching jobs just in case your plan blows up in your face. There are many ways to cut down on expenses to help you save up this rainy day fund.
Another wise move would be to check with your bank or lender of choice how many months of employment verification they will need to approve you for a loan. This is important because in case you find yourself in a climate of record-low interest rates next year and you are unable to get a lower-interest mortgage because they require 36 months worth of pay stubs!
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The Smart Recommendation:
Alternatively, the way to play it safe is, if you are planning to buy a house, but want to change jobs for whatever reason, then make the switch well before or after buying your new home. Figure leaving about a year and a half in either direction. It would not be too practical to switch jobs and apply for a mortgage the next day. Switching jobs well before the move is marginally preferable, as that way, you will still have your savings pot for the down payment intact. The advantages of taking that route also gives you the chance to decide to live close to where you work, rather than being forced to work within distance of where you live, as you will be able to choose your new home based on proximity to your new job. Remember, once you settle on a mortgage, you are committing yourself to that address for a very long time, typically at least 10-15 years before you can sell out at even a modest profit, so it will be much healthier for you in the long run to secure a job you are confident you can live with nearby that home.