With mortgage rates as favorable as they have been, even people who would otherwise pay cash for a home are taking advantage of low interest rates to finance homes and free up cash.
Now, most of us may have to borrow out of necessity and not have other options to make a home purchase happen. When that is the case, it is even more important to be "financeable." One factor that is often overlooked by buyers until it becomes an issue is the stability factor. Lenders are trying to assess buyers and look at historical and current information to determine risk. After all, the lender wants to loan money but needs to minimize risk to ensure that they get that lended money back.
So, what does stability have to do with it? It is a proven predictor of probability of pay back. For that reason, it is one of the top considerations for lenders when deciding whether to lend money to a prospective buyer. If that is the case, then what are those lenders looking at to determine stability?
Lenders want to see continuous employment for at least 2 years to give them the confidence that there is a higher probability that the source of income will continue. As a part of this, they also look for gaps in employment. The rule of thumb is that where they see gaps of more than a month, they want a reasonable explanation. In fact, they may even request or require sufficient documentation to support your explanation.
Although job changes do not disqualify a prospective buyer, the lender is looking for some logic behind the job changes. For example, is the prospective borrower obtaining a promotion with each move or just job jumping? Again, they may look for documentation that shows the progression. This allows the lender to gain faith that your future income will be at least what it is now if not higher.
Tenure with one company can certainly help substantiate that there is reasonable assumptions you will continue to be employed. When longer tenure is not the current situation, they may look at how "employable" you are based on skills, demand in the market, etc. In some cases, the lender may look for a letter from your employer that speaks to the future employability.
At the end of the day, it is about demonstrating that you are a viable, reliable potential borrower demonstrated through your credit history, your job/income stability, and your income level. I always say it is what you did up until this point that determines not only whether you will be eligible for financing but also what kind of rates you will be offered. Plan early because at the point of lending application, it's too late to change history.
NAPLES REAL ESTATE BLOG
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