What happens if I lose my job before closing on a mortgage

What really happens if I lose my job before closing on a mortgage? Losing your job within days of purchasing a home in New Jersey or another state can affect mortgage loan approval.

While getting a new job may alleviate this, it does not guarantee that your lender will give you the loan.

At Curbelo Law, we recommend legal advice from an experienced NJ real estate attorney to address issues related to the purchase and sale of property. 

If you are looking for legal advice, do not hesitate to call us, as we have more than 10 years of experience in this matter.

What Happens In 2024 If I Lose My Job Before Closing A Mortgage

Depending on what caused you to lose your job, you may still be able to purchase property. 

However, the lender is also likely to delay closing or deny your application for one type of mortgage loan .

To provide a clearer understanding, we will present some of the most common cases regarding this topic.

Common Scenarios That Can Happen If You Lose Your Job Before Closing On A Mortgage

• Delay in processing the loan: If you have stable income from another source or a co-borrower, the process could continue, but the closing could be delayed if the terms change.
• Getting approved for a smaller amount: You may be approved for a loan for a smaller amount, which could affect your home purchase.
• Loan denial: If your income is no longer sufficient, the lender may deny your home loan.

If any of the above occurs and you are under contract to sell your home in New Jersey, you may not be able to back out of it without facing legal repercussions.

Should I Tell The Lender I Lost My Job Before Closing A Mortgage?

If you lose your job before closing on a mortgage, you should immediately inform your lender and explain what happened. If you don’t do it, you commit mortgage fraud.

Remember that your borrower, before approving the loan, verifies your employment status and income. Therefore, it will not be long before the lender discovers that you are unemployed. 

About The Lender And The Granting Of Mortgage Loans

• You are required to notify the lender of all employment and income changes.
• Your lender’s decision whether to continue with the application may depend on whether you lose your job temporarily or permanently. For example, if you are suspended, you must explain in a letter when you expect to return to your job.
• You must demonstrate honesty and transparency at all times.

Many lenders call employers a few days before closing to verify current employment status. 

This is an additional precautionary measure against possible unreported unemployment.

Is It Possible For The Lender To Accept A Payment Receipt Before Or After Closing?

If you have a new job and will receive a pay stub before the closing date, your lender may accept this as evidence of your income. 

In fact, the lender can continue the process even if the first pay stub will be issued after the closing date. However, this will carry out a more exhaustive analysis.

This option is only available for loans intended for purchase transactions that meet the following criteria:

• Property will be occupied as a primary residence.
• Loan is calculated only on fixed salary income.
• Property is a single-family home.
• The new employer has no family relationship with the borrower and is not a party to the transaction.

If you have questions about the requirements for applying for a mortgage in New Jersey or are looking for advice on applying for a mortgage, you can review our respective blogs.

Steps To Follow If You Lose Your Job Before Closing A Mortgage

If you’re still wondering what happens if I lose my job before closing on a mortgage, consider that your lender can’t proceed with the closing. 

However, it is essential to take action quickly to address this. Below we detail some important steps to follow:

1# Contact Your Lender 

Inform your lender immediately about your employment status, as concealing job loss is not advisable.

This is because during the loan closing, you sign a document stating that your employment status remains the same.

2# Temporarily Suspend The Loan Application

Your lender will offer you potential options when they contact you. However, resist the temptation to cancel the application immediately, as you could lose application fees and earnest money.

Therefore, it is a good idea to ask the lender to pause your application while you evaluate your options.

3# Look For A New Job

It is highly recommended to get a new job, as finding one with a similar salary will probably not affect your mortgage loan application.

Some recommendations for this point are:

• Update your resume and online profiles: Make sure your profile reflects your experience.
• Let all your contacts know: Tell your friends, family and social media contacts that you are looking for a job.
• Highlight your readiness to start working: Emphasize your immediate availability to work.
• Explore new career fields: Keep an open mind to different career opportunities.

Keep in mind that getting a new job can be helpful in getting a conventional loan. However, other types of mortgage loans in the United States (such as FHA, VA, or USDA) may have different criteria.

4# Explore Other Sources Of Income

If you have a side job, retirement savings, or other sources of stable income, they could help you avoid being denied outright for your loan. 

Also consider adding a co-borrower with sufficient income if you are applying alone.

5# Consider Adjusting The Loan Amount 

If you haven’t found a home yet, you could explore the possibility of looking for a less expensive property than you had initially planned. You may also consider increasing your down payment to adjust the loan amount. 

6# Explore Alternative Housing Options

Make sure you have a place to live if your lease is up or you’ve sold your current home. 

Also, keep in mind short-term housing options or long-term leases while you recover financially.

Can I Change Jobs When Buying A House?

It is possible to change jobs during the process of purchasing a home. In fact, it may be beneficial if the new job offers a higher salary or better benefits.

In any case, it is important to maintain a stable work history. If the change is to a similar role with stable or higher income, the chances of approval are higher. 

However, if it involves a transition to a very different occupation or a significant reduction in income, it can complicate the home purchase.

If you live in the Garden State or are interested in purchasing a home in this state, check our blog on types of houses in New Jersey to get inspired by different options.

What To Keep In Mind About The New Job

If you want to change jobs after the closing, it is essential to start the new job within 90 days. In addition, it is required to have financial reserves to cover 6 months of expenses, including:

• Mortgages, 
• Taxes, 
• Insurance, and 
• Associative fees. 

If you don’t have 6 months of reserves, you could qualify to cover all of your monthly payments during the time between closing and starting your new job, plus an additional month. 

Additionally, it is recommended to avoid changing careers, as lenders prefer to see job stability within the same industry or job function.

We recommend that at all times, you maintain a good FICO credit score or one that meets your lender’s minimum requirement. Likewise, avoid spending money necessary to cover closing costs in New Jersey and the down payment.

Can I Cancel My Mortgage Loan Application?

If the above strategies do not yield positive results on your loan application, you may consider canceling it. 

However, this option should be the last measure to choose or it may suffer some of the following consequences:

• Loss of application fees: To top it all off, some lenders may charge a cancellation penalty.
• Credit implications: Canceling your application will not affect your credit score immediately, but it could impact future applications.
• Loss of earnest money: If you have made an escrow deposit, the seller may retain this money if you cancel the application.
• Other application-related costs: Some application-related services, such as a New Jersey home appraisal, may be non-refundable.

Frequently Asked Questions About What Happens If I Lose My Job Before Closing On A Mortgage

What Happens If You are out on temporary leave?

If you are furloughed from work, your lender may be able to continue with your loan, but must confirm your intention to return to work. 

If you return before the first mortgage payment, your usual income will be used. If not, your license revenue will be used. To do this, you can supplement with liquid assets until your temporary permit ends.

What Happens If I Am Temporarily Suspended Or Laid Off From My Job?

If your employer temporarily suspends or dismisses you without pay, the furlough conditions do not apply. 

Unemployment benefits are generally not counted as short-term income, except for seasonal workers with at least 2 years of consistent income. 

If you are on a temporary layoff and receiving pay, your lender may consider your pay for calculations, but your debt will be adjusted if it is less than your regular income.

Is It Necessary To Have A Job To Get A Mortgage Loan?

It is not necessary to have a job to obtain a mortgage, since what is important for lenders is your ability to pay. 

If you have sufficient liquid assets, you may qualify for an asset depletion mortgage.

Income stability is vital during the mortgage process, as is maintaining good credit. 

What Other Types Of Income Can Qualify For A Mortgage?

In some cases, lenders help identify other sources of income that may be helpful in qualifying for a loan. 

Among the most common for a request based on regular employment income are:

• Foster care income.
• Long-term disability income.
• Social Security or Veterans Affairs payments.
• Other government retirement benefits or annuities.
• Trust income.
• Retirement distributions (such as from your 401(k) or IRA).
• Alimony or child support.
• Royalty income.

Additionally, you may also need to prove that you will continue to receive income for at least 3 years after closing.

Can I Request An Extension On My Mortgage Loan Application?

Requesting an extension may be necessary if closing is near and you are facing job loss. 

Your real estate agent may be able to negotiate an extension, although this depends on local market conditions. 

Given that approximately 12% of home closings face delays, asking for an extension is a reasonable request in such circumstances.

How Can Curbelo Law Help You If You Lose Your Job Before Closing The Mortgage?

Losing your job after getting approved for a mortgage can be a devastating scenario. Therefore, it is important to act quickly and contact the lender. 

At Curbelo Law, we have over 10 years of experience in real estate in New Jersey and can help you navigate various real estate matters.

We hope that this article on “What happens if I lose my job before closing a mortgage” has clarified some questions for you.

However, if you continue to have them, we recommend calling us at our Ridgewood office today for a personalized consultation. 

Don’t let the loss of your job stop you from achieving your dream of owning your own home.