Losing a job is tough enough. But what do you do if you find yourself out of work when you’re weeks or even days from closing on your dream home?
Brutal. But it happens. Employment isn’t a requirement for getting a home loan – just ask retirees. The issue is ensuring there’s stable, reliable income that’s likely to continue. For most homebuyers, the source of that stream is a steady 9-to-5 job.
Needless to say, losing your job unleashes a wave of uncertainty into the loan process. It doesn’t automatically kill your deal. In fact, it may not even delay things. Whether you can salvage the purchase often depends on your overall income picture and how quickly you land a new gig.
And even then, you’re still at the mercy of an eagle-eyed underwriter already on high alert. Success in these situations comes on a case-by-case basis. Here are a few things to know.
Should You Tell Your Lender?
Your first inclination might be to see if you can sneak one past the goalie. That’s a bad idea for a couple reasons.
One, lenders verify your employment and income early in the loan process and again near the time of closing, sometimes just hours before. They’re almost always going to hear it straight from your (now former) employer.
Two, you could be committing mortgage fraud by failing to disclose your job loss. Borrowers usually sign documents requiring them to notify the lender about any significant changes to employment or income.
Three, even if you could keep it a secret through closing, would you really want to? Unless you’re hopping into another job, making those new mortgage payments might be a real challenge. Defaulting on a home loan can wreck your credit and hamper your financial profile for years.
In fact, missing payments on any debt can hurt your credit, and if your job loss results in late payments on other debts in the lead-up to your mortgage closing, your credit score will reflect that. Monitoring your scores can help you keep up with what’s going on with your credit so you can address any problems with your creditors and your lender (and one way to monitor your scores for free is through Credit.com).
You may be able to hang onto that new home if you swiftly land a new job. It’ll need to be similar to your old one, in terms of the field, the type of work and the pay. Written details and confirmation from the new employer can help.
Lenders may require you to be back to work for 30 days before moving forward, a wait that could affect everything from your closing date to your interest rate and more. In some instances, you might be able to convince the lender to move forward without delay, especially if you get a new job posthaste. So much depends on your specific situation.
Depending on the loan type, you could also look to add a co-signer and count that person’s last-minute income. That person would need to meet the same credit and underwriting requirements you did. Also, you should both fully understand the implications of being a co-signer, i.e. what happens if you miss a payment.
Talk with your loan officer and your real estate agent about your options. Remember that continuity is critical regarding the new job. Jumping into a new career will usually require a significantly longer wait before lenders are willing to count that income.
Most people need their employment income to qualify for a home loan. But some borrowers may have other sources that can satisfy the lender.
Retirement income, disability income and rental income can all be considered. Lenders will want to verify these sources and have confidence that it’s likely to continue for at least the next three years.
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