October 14 2021
There are many steps to the home buying process and even if you follow all of the steps accurately, life can sometimes throw you a curveball. Let’s say you’ve been approved for a mortgage, but about one month before closing your employer unexpectedly lays you off. What exactly do you do? If you find yourself in this situation, here are some things you can do to move forward.
Not disclosing a major change in circumstances on your mortgage application is actually considered mortgage fraud.If you’ve been approved for a mortgage and suddenly lose your job, your lender should be notified immediately. The faster you tell your lender about your situation, the sooner they can help you map out a plan. This will give you the opportunity to discuss options for maintaining approval and possibly readjust your mortgage contract. It's very common for lenders to verify your employment before closing, which means they’re likely to find out about it regardless.
Your lender's decision to go on with the application may depend on whether you lose the job momentarily or permanently. For example, if you’ve been furloughed (temporarily laid off) from your job, explain this to your lender and provide a written letter outlining when you expect to return back to work. This shows that you’re being honest and transparent about the situation and on your way back to being employed again.
Maintaining a good credit score is essential no matter where you are in the mortgage process but it's extra helpful if you find yourself without a job before closing. Staying on top of your credit card bills and loans is extremely crucial to keeping your credit score in good standing. If you find yourself with more expenses than you can handle at this time, tapping into your savings could be a helpful solution instead of racking up your credit card or line of credit.
One option would be to contact any of your lenders or creditors and let them know that you unexpectedly lost your job. You may be eligible for a “skip payment” option, which allows you to skip payments for a certain number of months without incurring a penalty fee. This could help you save more money while also ensuring that your credit score isn’t negatively impacted for this short period of time.
In the midst of all of this, finding a new job should be your top priority. Start by updating your resume and LinkedIn profile, tapping into your network and researching job opportunities in your industry. If you’re able to find a position quickly, it could be enough to save your mortgage. If you’re able to secure a job, your lender will request copies of recent paychecks and confirm employment with your new employer. It’s important to note that your lender may require that you hold that job for at least 30 days before closing. To increase your chances of finding a new job, highlight your ability to begin work immediately, as it can be a major selling point to employers who need support right away.
Having someone join your mortgage as a co-signer, such as a parent or close family member, is another way you can meet your lender’s requirements if you’re jobless. A co-signer is someone who applies for the mortgage loan with you and legally agrees to take liability on the mortgage and pay off the debt if you are unable to make payments. In the event that you lose your job, a co-signer can help by adding the additional salary and any other requirements you may be missing on your application during this time.
Once you secure another job and have the income to support the mortgage on your own, you can then choose to remove the co-signer from your mortgage contract. Removing a co-signer is considered a covenant change and requires you to refinance your mortgage, which could result in paying a penalty fee. You’ll also need to go through a re-approval process where your lender will determine if you’re able to qualify for the mortgage on your own and if removing your co-signer is the best choice.
If you’ve lost your job and still haven’t found one in the last three months, a private mortgage may be a short-term solution. A private mortgage is a home loan issued by a lending institution that’s not a traditional bank, credit union or monoline lender. These are open mortgages with higher rates, making it easier to qualify as you continue your job search. Once you’ve secured a job and have passed your probationary period, you can then re-apply for a prime mortgage.
While losing your job before closing your home is both stressful and uncertain, it’s important for seeking home buyers to know there are ways to improve their circumstances and get back on their feet. At Homewise, our goal is to support every home buyer as they navigate the mortgage process, with expert mortgage advisors providing the guidance to overcome any roadblocks that come their way.
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