A common question in our office is: what happens if I lose my job before closing on a mortgage? You are in the right place to get a clear answer.
Losing your job within days of buying a home in New Jersey or another state can be truly nerve-wracking, especially if you don’t have an alternative source of income.
Getting a new job can alleviate this situation, but it doesn’t guarantee that your lender will give you a home loan when you’re on trial at your new job.
Our experienced real estate attorney in New Jersey has been resolving real estate matters for over 10 years. Curbelo Law with offices in Ridgewood and Newark can become your legal trustable support.
So, What Really Happens In 2022 If I Lose My Job Before Closing A Mortgage?
Depending on the reason behind losing your job, you may still be able to purchase property. However, it is also likely that the lender will delay closing or cancel your approval of a type of mortgage loan .
Keep in mind that getting pre-approved for a loan does not guarantee closing. This just means that you can likely be approved by completing the mortgage process.
Therefore, any change that affects your income, employment, or credit prior to closing affects your mortgage qualification.
To better understand what happens in if you lose your job before closing on a mortgage loan, we invite you to learn more about the requirements to apply for a mortgage in New Jersey and our tips on what not to do when applying for a mortgage loan.
Do I Need To Tell The Lender That I Lost My Job Before I Close On A Mortgage?
If you lose your job before you close on a mortgage, you should tell the lender immediately and explain what happened. Failure to do so will be considered mortgage fraud.
Remember that your mortgage provider verifies your employment status and income before approving the loan. Therefore, it will not be long before the lender finds out that you are unemployed.
You should consider that:
- You are required to notify the lender of all your employment and income changes.
- Your lender’s decision to continue with the application may depend on whether you lose your job momentarily or permanently. For example, if you are furloughed (temporarily laid off) from your job, you must explain your situation to the lender in a written letter talking about when you expect to return to work.
- You must demonstrate honesty and transparency about your new situation at all times.
Most lenders call employers a few days before closing to verify current employment status. This is an additional precautionary measure against possible unreported unemployment.
Can I Go Ahead With The Loan Application Without A Job?
Some applicants continue the loan application process even though they no longer have the same job. This is because in certain cases it can be shown that they have a good stable income thanks to other employment or other sources of income.
However, even though you can demonstrate stability in your income, setbacks are possible. Not having the same income level from when you applied reduces your chances of getting a loan.
Although each scenario is unique, when it comes to your loan application it could happen that actually, nothing happens, it is delayed, it is accepted for a lower amount or it is completely denied.
Next, we will detail each of these points.
There is a chance that losing your job may not directly affect your loan. This usually happens if the mortgage application is joint with your spouse. With a debt-to-income ratio, the level of disqualification may not be a deterrent. However, this requires your spouse to earn a high amount of income.
Also, if your mortgage application is for less than what you could have paid with your previous job, your chances of staying approved are increased.
Even if you get a new job right away, your closing date may be delayed. This is because the lender needs time to verify your employment status.
This does not mean that your loan application will be rejected, it is just a form of protection that lenders have.
Some lenders may be willing to finance a mortgage for much less than the originally approved amount. This can ruin your dream of buying a big house and you have to search for a more affordable one. Although it can be daunting, you can qualify for the mortgage.
Even if you receive pre-approval for a loan, the lender may deny your application at closing. This happens as long as you are considered a very high risk for the lender.
You may also be considered high risk if your new job is in a different field than the one you previously worked in or if you are on a trial period.
If you are looking for more information regarding a denied mortgage, check our related article on mortgage loan denied at closing.
Steps To Take If You Lose Your Job Before Closing A Mortgage
If you’re still wondering what happens if I lose my job before I close on a mortgage, consider that your lender can’t proceed with a closing unless you provide another source of income.
Losing your job doesn’t mean you can’t buy property. However, you must take specific steps to achieve this. Some steps we recommend are:
1# Maintain A Good Credit History
If you lose your job, it’s important to maintain a good FICO credit score or a score that meets your lender’s minimum requirement.
- Late payments lower your credit score. This may put your home loan at risk or result in a higher interest rate.
- Putting your savings toward keeping bills current can help you maintain your score, but you risk spending money you need for New Jersey closing costs and a down payment.
You may be eligible for a skip payment option. Contact your lenders and/or creditors to determine your possibilities.
If you’re eligible, you can skip your payments for a set amount of time without penalty. With this, you can keep your money while protecting your credit score.
2# Explain The Reason Why You Lost Your Job
You must be honest and fully explain why you lost your job. You may still be able to buy your home, but with a possible delay from the lender.
If you’re only temporarily furloughed, your lender probably won’t immediately pay off the mortgage, since you can go back to work before your closing date. Please note that your lender may cancel the mortgage if:
- You are still unemployed a few days before the closing date.
- You are permanently fired from your job.
3# Get A New Job
If you get a new job relatively quickly, this may save your mortgage. However, your lender may require you to stay in your new job for at least 30 days before closing. Besides:
- Your new job must be in the same field as your old one.
- The salary must be similar or higher than the previous employment.
- The lender may request copies of your recent pay stubs and will contact your new employer to confirm your new employment status.
4# Ask The Lender To Recalculate Your Income
Obtaining mortgage approval does not only require income from an employer, other sources of income are also accepted. As we’ve seen in this article, if you lose income from your previous job, other sources of income can help you qualify for a loan. These can be:
- Alimony payments.
- Disability and retirement income.
- Child support payments.
To use child support or alimony income, you must receive it at least 6 months before you apply for the mortgage. Additionally, payments must continue for at least three years after closing.
5# Apply For A Smaller Loan
After calculating your income using other sources, your lender may approve the mortgage, but for less than the original amount. If you find yourself in this situation, your only option is to cancel the original purchase (even if you lose your security deposit) and look for a more affordable house, or go ahead with the purchase with a higher down payment.
If you live in New Jersey or are interested in buying a home in this state, check our blog on the types of houses in New Jersey to get inspired by different options.
If you need extra money, one option is to use gift funds to cover a larger down payment. There are several home loan programs that allow borrowers to use gift funds to cover closing costs and/or a down payment.
However, your lender may request information about the donor of the gift funds.
6# Find A Co-Signer For The Loan
One option to continue with your mortgage application is to get a co-signer for the mortgage loan. This option could include a family member in good financial standing. However, you will need to meet the minimum credit score requirements and understand the risks associated with co-signing the loan.
The co-signer’s name will appear on the mortgage loan, so they will both be responsible for the mortgage payment.
Please note that the only way to remove the co-signer’s name is through a loan refinance.
What Happens If I Cancel The Loan Application?
The steps outlined above may not have a positive impact on some applicants. If you find yourself in this scenario, you may have the option to cancel your loan application. While this option is a last resort, it can save both you and your lender time and effort.
You may cancel your loan application at any time. However, not all fees related to the application will be refundable. Depending on your lender’s policies and when you paid off the loan, you may face one or more of the following consequences:
- Loss of fees. Mortgage applications take time, plus there are certain fees from the lender to process the application. They are generally non-refundable and some lenders may charge a financial penalty for canceling the loan application.
- Loss of earnest money. If your loan application is advanced, you may have a small deposit in escrow. Commonly known as earnest money, this deposit typically ranges from 1% to 3% of the purchase price. If you decide to cancel your application suddenly, the seller is entitled to keep the security deposit.
- Credit complications. Canceling a mortgage application will not affect your credit score. However, if you decide to apply for new loans in the near future, your credit score could be affected.
- Other related costs. Most lenders offer a variety of free services, but also some that are not, the cost of which is not reimbursable. For example, NJ home appraisal fee and rate lock fees.
Should I Cancel The Mortgage Application?
Losing your job in the middle of applying for a mortgage can be stressful, but you have several options in your favor. As we have seen in this article. If you still don’t know what to do in these scenarios, contact our Latina attorney Carolina Curbelo and her team of real estate professionals. In a private consultation, she can guide you, advise you and provide you with the best options available for your scenario.
4 Things To Know If You Lose Your Job Before Closing
- If the job loss is not permanent. If your employer has promised to return to work within a period of time, you must notify the lender of this. Veterans United states that if you are suspended, the key initial loan consideration is whether you still have income. If income is reduced while you are suspended, the application may still continue, provided you can meet ability to pay and other guidelines. Borrowers who cannot qualify at a reduced payment rate should take a break until their income recovers.
- If you are self-employed. Self employed mortgage loans are available to all those who are self-employed. Lenders check to see if the business you are in is open and operating publicly. In the event the business goes out of business (even temporarily), the lender may not use your past income to qualify you for the mortgage loan.
- If you have a commission based job or reduced hours. Your lender may refuse to close on a previously approved loan application if:
- Your income is through sales commissions and profits have plummeted, or
- You are working fewer hours or receiving reduced wages.
- If it is a joint application and one is working. If you or your spouse is unemployed but the other is still working, you may need to look for a smaller home to adjust your loan down to a smaller one. If your combined income doesn’t qualify for the home you want, you should cancel your purchase agreement, find a cheaper home, and restart the mortgage process.
How Can Curbelo Law Help You?
The Curbelo Law firm has more than 10 years of experience in real estate matters. Our attorneys are New Jersey foreclosure specialists and real estate litigators ready to assist you in many areas of real estate.
Certainly, losing your job after getting approved for a mortgage can be a devastating scenario. Getting a new job can take weeks, months, or even years. During this time, your lender may cancel the loan.
The important thing in these scenarios is to act fast and notify your lender as soon as possible. With this guide you already have an answer to what happens if I lose my job before closing a mortgage. If as a result of this, you have legal requirements, do not hesitate to contact our offices in Ridgewood and Newark in New Jersey.