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.
Purchasing a home is an exciting milestone. However, the process also involves a lot of stress and difficult decisions. One common question homebuyers face is whether they can quit their job before closing on the house.
The short answer is – it’s risky and could jeopardize your mortgage approval. Here’s a detailed look at what happens if you quit your job before closing and steps you can take.
Why Lenders Care About Your Employment
When you apply for a mortgage, lenders want to see that you have a stable job and income. They use this to determine if you can reliably make the monthly payments. Quitting your job midway through the process can set off alarm bells and make lenders question your ability to pay back the loan.
Specifically, here’s what lenders look for regarding employment:
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Steady job history: Lenders often want to see 2 years of continuous employment in the same or similar field. Job hopping can be a red flag.
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Current employment Lenders will verify your employment, often within 10 days of closing Quitting before closing means you no longer meet the job requirements
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Sufficient income Your job provides the income to make payments Quitting may mean you no longer have enough income for the loan.
Bottom line – your lender wants to see stability in your employment and income. Quitting your job shakes up that stability making them reluctant to approve the loan.
What Happens If You Quit Before Closing
If you voluntarily resign from your job before closing, a few things could happen:
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Delay in closing: The lender may delay closing and require you to provide proof of new employment with similar income. This can drag out the process.
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Denial of the loan: If you cannot show you still have enough income, the lender may deny the mortgage altogether. This means you cannot buy the house.
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Higher interest rates: As you now look riskier to lenders, they may only approve you for a higher interest rate on the mortgage. This raises your long-term costs.
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Financial penalties: If resigning causes the purchase to fall through, you may lose your earnest money deposit and other related fees.
The consequences depend on your specific situation, such as your overall financial health and the lender policies. But in most cases, voluntarily quitting will negatively impact your loan approval process.
When Is It Okay to Quit Your Job Before Closing?
There are a few scenarios where quitting your job before closing may be safe:
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You’re staying at the company but switching departments or taking a different role. As long as your income is the same, this may not affect the process.
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You have a co-borrower on the loan whose income can carry it. Their stable job may compensate for you quitting.
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You have substantial assets, savings, or alternative income sources to replace your salary. This requires planning ahead.
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You’re lined up to start a new job very soon after closing with equal or higher pay. Timing is key here.
Outside of limited cases, quitting mid-process is risky. The lender wants to see consistent employment right up until the closing date.
Tips If You’re Considering Quitting Your Job
Here are some tips if you’re thinking about resigning before closing:
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Talk to your lender first: Explain the situation and get their advice. See if they will still approve the loan.
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Line up new employment: Having a new job offer in hand will help ease the lender’s concerns over quitting.
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Consider timing: Waiting until after closing is safest. If you must quit before, do it as far from closing as possible.
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Maintain income: Make sure you have enough income between jobs to qualify for the mortgage.
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Check with your realtor: Understand penalties if you must delay or cancel for financial reasons.
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Review your budget: Ensure you have savings to cover bills during an unemployment gap.
While allowed in some cases, quitting your job before closing on a home is generally inadvisable. If you are thinking about it, proceed with extreme caution and get professional advice.
What to Do If You’ve Already Quit Your Job
If you’ve made the decision to resign before closing, take these steps to preserve your home purchase:
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Inform your lender immediately: Explain why you left your job and your plan going forward.
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Provide new employment details: Offer letters, pay stubs, or contact info to verify your new job.
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Show supplementary income: Bank statements proving you have ample savings or assets to cover payments temporarily.
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Request loan modifications: Ask the lender if they will still approve the mortgage with updated terms given your new financial status.
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Be honest: Lying about quitting your job constitutes mortgage fraud. Tell the truth upfront to avoid bigger issues down the road.
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Get help: Consult a real estate attorney if you run into significant hurdles or delays related to quitting before closing.
The more evidence you can provide that you’re still financially stable, the better chance you have of convincing the lender to move forward with closing on schedule.
Key Takeaways
Quitting your job before closing on a home mortgage introduces risk into the lending process. While possible in some cases, it can lead to higher rates, denied loans, or monetary penalties if you void the purchase agreement.
To keep your home buying plans on track, try to avoid resigning until after closing day. If you must quit before closing, be upfront with lenders and have backup income sources in place. With proper preparations, you may be able to quit and still follow through on buying your dream home.
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.
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.
What to do if you lose your job while buying a home
FAQ
Can I quit my job before buying a house?
Yes, you can quit your job before buying a house, but there are several factors to consider: Income Stability: Lenders typically look for stable income when approving a mortgage. Quitting your job may affect your ability to secure financing.
What happens if you lose your job before closing on a house?
Can I change jobs before closing on a house?
Changing jobs before closing on a house
Your lender will want to verify that your new job is either a continuance or an improvement to your current stream of income, so they’ll likely require a Verification of Employment (VOE) in addition to a letter from your employer.
Does the lender check employment before closing?
Prior to closing
Many lenders will repeat income and employment verifications before closing to confirm nothing has changed. This helps the lender reduce risk of a loan buyback. Borrowers should note: experts generally recommend that they not change jobs during the mortgage loan process if they can help it.
Can You Quit a job before closing on a home loan?
Quitting your job before closing will put your mortgage loan at risk. Lenders won’t approve your home loan if you don’t have enough income to make the loan’s monthly payments. You may be able to quit a part-time job if you aren’t using the income to qualify for your loan. Should I tell my realtor I lost my job?
What happens if I Lose my job before closing on a loan?
If you lose your job before closing on the loan, a few different things can happen: Delay in processing your loan: If you’re receiving stable income from another source, or you have a co-borrower whose income is sufficient to meet the lender’s requirements, the lender may decide to continue with the loan process.
What if you lose your job before closing on a house?
Here’s what you need to do if you lose your job before closing on a house. The experience of losing a job is stressful in its own right, but if you’re in the middle of the mortgage process, a layoff can create unintended and serious complications.
Should I keep a job after closing a home?
But it’s best to maintain steady employment after closing to ensure you can pay your mortgage. Fannie Mae – “Assessing Income from Self-Employment”. Updated May 2021. If you don’t love your Clever partner agent, you can request to meet with another, or shake hands and go a different direction.
Will losing my job affect my mortgage?
Job changes after closing don’t affect your mortgage eligibility, and most lenders don’t care about employment changes after closing. But losing your employment could hurt your ability to repay your loan. Do I have to tell my mortgage lender if I lose my job after closing?
When can I change jobs after closing on my house?
You can change jobs as soon as you close on your house. But you should avoid an immediate job change if it results in delayed mortgage payments or financial uncertainty.