Options for Homebuyers Who Lost Their Job Before Closing

If you lose your job before closing on a mortgage, there’s a good chance the loan could be denied.

The lender needs to prove you can make your payment, which is difficult with no verifiable income source.

Thankfully, losing your job doesn’t have to mean losing your new home. Here are some ways you can deal with sudden unemployment during the home-buying process.

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Tell your loan officer

Even though there’s a chance you could slip your job loss past your loan officer, it’s not good practice. Lenders call the employer on the day of closing for additional verification, so the odds are slim that you’d get away with it.

Also, not telling the loan servicer could constitute mortgage fraud if you’ve signed documents saying you’ll be honest about your employment status. Your loan officer may be more helpful than you realize. After all, they don’t get paid unless the loan closes. They want the deal to go through.

Get another job – fast

If you start another job quickly, you may be able to use the offer letter to re-qualify for the loan.

The letter should state your new salary, start date, and that it’s a permanent, full-time position. Make sure the job is in the same line of work.

The lender may require you to receive your first pay check before closing, which could take a few weeks after you start. So the sooner your start date, the better.

Ask the seller for more time

If you don’t close on time, the seller can legally take your earnest money. That’s no fun. But, most sellers don’t want to start over. It could take months to sell the home to someone else.

Ask for a 30 day extension. Compensate the seller for their extra costs, such as interest paid on their loan, plus taxes and insurance.

You’d be surprised at how flexible a seller can be when they don’t want to find another buyer for their home.

Fall back on your spouse’s or a co-signer’s income

If you’re married and can qualify for the mortgage solely based on your partner’s salary, you may still be able to get the mortgage with one person’s name on the loan.

Some people bring in a co-signer if they don’t qualify alone, or if their spouse lost their job. Co-signing can improve your chances of getting a mortgage but can wreak havoc on a relationship if you fail to make payments. Plus, you’ll have to refinance and change the names on the deed if you want to remove the other person from the loan.

If you are eligible to move forward, it’s still wise to consider whether you should. Unless you’re receiving severance and/or already have a few prospects lined up, it can take weeks or even months to find a new job. Do you want the stress of a new home on top of your already full plate?

Find short-term financing

There are more loan programs out there than conventional, FHA, USDA, and VA. A lot more.

You can consider an owner-occupied hard money loan which is perfect for temporary financing while you find a permanent loan solution. These loans can give you a 6-12 month window to find another job, build history, then refinance into a 30-year fixed mortgage.

Or, you could see if the seller is willing to provide financing. This is known as a seller carryback. Instead of receiving all the money from the sale at once, some sellers would like monthly income and a nice return on their money. Your interest rate would be higher, but you can close quickly without involving a bank at all.

Consider backing out of the transaction

It’s not the end of the world to back out of the transaction. It might be wiser to forfeit $5,000 in earnest money than to proceed with a loan you can’t afford. You can find a new job and soon be back on track to buy another home.