Losing your job prior to closing could delay your closing date or, in some cases, lead to a lender denying your application for a mortgage. Hereâs 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 youre in the middle of the mortgage process, a layoff can create unintended and serious complications.
In the best-case scenario, the lender may simply delay the closing process or approve you for a lower amount, but depending on the situation, your loan application may be denied.
What if You Lose Your Job Before Closing on a House? A Step-by-Step Guide
Losing your job right before closing on a new home can be an incredibly stressful situation As you’re preparing to take on a large financial commitment with your mortgage, an unexpected job loss can throw everything into uncertainty
While this scenario may feel overwhelming, there are steps you can take to navigate it. In this guide, I’ll walk through what happens if you lose your job before closing your options, and tips to protect yourself financially.
How Job Loss Impacts Your Mortgage Application
When you apply for a mortgage, lenders want to see that you have a stable job and income. This gives them confidence that you’ll be able to make your monthly payments. So if you lose your source of income, it can jeopardize the underwriting process.
Here are some potential consequences if you lose your job before closing on a mortgage:
-
Delayed closing date. The lender may request additional documentation and push back the closing until you find new employment.
-
Reduced loan amount. You may only qualify for a smaller loan, requiring a larger down payment.
-
Denied mortgage application. If your job loss means you no longer meet the lender’s income requirements, they may deny your loan altogether.
-
Higher interest rates. A job loss could impact your credit score, resulting in a higher mortgage rate.
-
Inability to buy the home. If you’re under contract but no longer qualify for a mortgage without your job, you may have to forfeit your earnest money deposit.
Steps to Take If You Lose Your Job
Don’t panic if you lose your job before closing. While stressful, being proactive can help mitigate the fallout. Here are some steps to take:
-
Contact your lender immediately. Explain your situation honestly and ask about your options. See if they’re willing to work with you.
-
Pause homebuying activities if needed. You may need to put your home search on hold while you focus on finding a new job.
-
Provide documentation of your job loss. Your lender may request separation agreement, unemployment documentation, etc.
-
Look for a new job ASAP. Secure new employment quickly to show lenders you still have income.
-
Consider alternative options to qualify. You may need to bring in a co-signer or use other sources of income.
-
Be ready to put down a larger down payment. With less income, you may only qualify for a smaller mortgage.
-
Discuss backup plans with your real estate agent. If your mortgage falls through, you’ll need contingency plans for the sale of your current home.
Will Changing Jobs Affect Mortgage Approval?
If you change jobs voluntarily before closing, it can also raise red flags. Lenders prefer two years of stable employment history on your loan application.
That said, as long as your new job is in the same field and your income level is similar, it likely won’t derail your approval odds too much. Be prepared to provide more documentation about the new job.
Strategies to Protect Yourself Financially
While you can’t always prevent unexpected job loss, there are things you can do to cushion the blow:
-
Build a robust emergency fund. Having 6-12 months of living expenses in savings provides a safety net.
-
Maintain excellent credit. A high credit score increases your chances of approval after job loss.
-
Stick to a fixed-rate mortgage. This prevents payment shock from rising interest rates.
-
Look into mortgage protection insurance. This can help cover payments if you lose your job.
-
Consider purchasing a home you can afford on one income. This builds in financial resilience.
Losing your job right before buying a home can be very difficult. But understanding the potential impact, being proactive, and utilizing protective financial strategies can help you navigate it while still achieving your dream of homeownership. With planning and perseverance, you can overcome this challenge.
What Happens if You Lose Your Job Before Closing on a Mortgage?
A mortgage loan is a significant financial commitment for both you and the lender. As a result, your ability to make monthly payments is a critical factor in the lenders decision to approve your loan application.
If you lose your job before closing on the loan, a few different things can happen:
- Delay in processing your loan: If youre receiving stable income from another source, or you have a co-borrower whose income is sufficient to meet the lenders requirements, the lender may decide to continue with the loan process. Because the terms have changed, however, there may be a delay in closing.
- Get approved for a smaller amount: Another outcome for people who may still have sufficient income is to get approved for a smaller loan amount. That said, if youre already under contract for a home, you may not have enough financing to complete the sale. You could put more money down if you have it, but depending on your job prospects, it might make sense to hold on to as much cash as possible.
- Have your loan denied: If your income is no longer sufficient to meet the lenders requirements for a mortgage, the financial institution may simply deny your application.
Keep in mind that if any of these happen and youre under contract to sell your current home, you may not be able to back out of it without legal repercussions. And if youve already finalized the sale of your home, nothing can be done to change it.
Can You Change Jobs While Buying a House?
It is possible to change jobs while youre in the middle of the mortgage process, and it may even be worth it if the new position offers a higher salary or better benefits. That said, switching jobs can impact your approval odds.
Having a steady employment history is crucial, so the lender may want to understand the reason for the change and obtain more detailed information about your past employment and income.
If youre advancing in your career or youve moved to a similar job with a different company within the same industry and your salary hasnt changed muchâor its increasedâyou may not have too much trouble. But if youre switching to a different career entirely or your income has dropped significantly, it could throw a wrench in your plans to buy a home right now.
What to do if you lose your job while buying a home
FAQ
What happens if you lose your job while buying a house?
Lenders typically verify employment just before closing, and a layoff may lead to a denial of your loan application. Employment Verification: Lenders usually require proof of income and employment stability. If you can’t provide this due to the layoff, they may withdraw their offer or require additional documentation.
What if I lose my job before closing?
You need to notify your lender, or else it could be construed as mortgage fraud since you no longer have an income and haven’t closed. Nearly all lenders will also recheck employment the day before closing. Sales contracts have a financing contingency for this reason.
What happens if you back out right before closing?
You will likely lose your earnest money deposit, and any inspection and appraisal fees you have already paid. If you don’t have “Clear-to-close” yet, maybe something can happen to deny your financing. Be creative. Are there any contingencies in the contract you can use to get out of it?
What happens if you change jobs before closing on a house?
you will sign documents that attest that your financial situation hasn’t changed. One of the questions may literally ask about employment (I’m too lazy to go look). If you quit before closing, you’d be committing mortgage fraud.