Do you change jobs frequently? Typically, lenders frown upon that because it doesn’t show stability and reliability. But, there are some exceptions to the rule when it comes to FHA loans. The FHA understands that sometimes job changes happen and they are for the better.
The FHA has guidelines regarding borrowers that change jobs more than three times in 12 months. If you changed jobs less than three times in 12 months, you won’t have to do any of what follows. If you have, though, don’t give up on your chance to secure an FHA loan. Just know that you will need to provide additional documentation to get your approval.
Proving Your Reason for the Job Changes
One thing the FHA wants lenders to make sure of is that you have the ability to succeed at the job. The FHA wants to know that you are qualified for the job and that you didn’t just take it because nothing else was available.
So how do you prove your ability for the job? You can do it in one of several ways:
- Provide proof that you underwent training or attended school for the new job. If you changed careers, this is vital. If you switched jobs within the same industry, you may be able to provide your history in the industry as your proof.
- Provide proof of an increase in your income and/or benefits to warrant the job changes. If you took a new job in the same industry because you were able to take a higher position and/or get higher pay, you can document that as your reason for changing jobs frequently.
What Lenders Think
Now these rules are according to the FHA. The FHA doesn’t write or fund the loans, though. FHA approved lenders do this. These FHA approved lenders can also have their own requirements on top of what the FHA wants. They do this because they want to limit their risk of default.
Because of this, you may find lenders that won’t give you a loan if you changed jobs three or more times in 12 months. They may see that as high risk. The good news is that you can use any FHA approved lender that you want to use. This means that you can shop around to find the lender that is right for you.
Gather Your Compensating Factors
If there’s one thing you should focus on if you do have frequent job changes, it’s your compensating factors. You need to prove that you aren’t a high risk in other areas of your life. Some compensating factors include:
- High credit scores – The FHA only requires you to have a 580 credit score, but that doesn’t mean you shouldn’t strive for a higher score. A high credit score means that you are a financially responsible person. This could decrease the risk that your frequent job changes pose.
- Low debt ratios – Lenders like borrowers that don’t have a lot of outstanding debt. You can have credit card debt, but keep it at less than 30% of your credit line. You can also have installment loans, but keep them to a minimum. The FHA allows a total debt ratio of 41%, but if you can keep it well below that, it can work in your favor.
- Reserves – The FHA doesn’t require you to have reserves on hand when you get an FHA loan, but they can’t hurt. The more money you have in a liquid account, such as checking, savings, or stocks/bonds, the better your chances of loan approval. Lenders count your reserves based on the number of months of mortgage payments that it covers. The longer you can cover your mortgage with your reserves, the better your chances of approval.
Frequent job changes don’t have to prevent you from getting an FHA loan. You just have to know how to present it to a lender. Now if you change jobs often because you just aren’t happy doing what you are doing, then that’s another story. If you do it to better yourself and your income, then you can explain yourself and provide the proof in order to get your loan approval.