Bought a Home, Got Laid Off: Options for Homeowners Facing Financial Hardship

It’s possible to receive a final approval for your mortgage, make it through closing day, get your deed, and then… get laid off.

It’s also possible to have an unexpected employment change before you close.

When calamity strikes the innocent borrower, what’s next? What steps are best taken to make the path ahead bearable?

Let’s go through the possibilities.

What Could Possibly Go Wrong? Be Prepared

You and your lender check in with your workplace in the weeks leading up to closing. A lender needs to know all is well with your expected mortgage repayments. All seems fine. Your job is safe; you’re ready to close.

But you also know a medical emergency or some other fundamental change in your situation could occur any time before you have your deed in hand.

This is exactly why your mortgage specialist doesn’t want you to exhaust all your savings when buying a home—even if you want to. If you have savings to tide you over for six months or more, then your lender is assured of your financial strength for some time. So, lenders expect you to hold financial reserves to cover six months’ worth of mortgage, interest, tax, and insurance payments, and normal living expenses.

But if you lose your regular income on the runup to closing, your mortgage could  be delayed or even derailed. So while it’s good to approach your home purchase with confidence, it’s also good to game out the unexpected.

Look out for any liens on the home you’ll buy, especially past-due property taxes, that might need resolving on closing day. Those are frequently unexpected bills that can take a bite out of your savings when you close.

How to Deal With a Job Loss or Change When Trying to Close on a Home

You might need to change jobs when you’re in the process of buying a home. But try to wait until after closing. Changes in your levels or sources of income can put your approval in jeopardy.

If you’ve been offered a promotion, or a similar job but with higher pay, you should be fine. Just be sure to talk this through with your mortgage consultant before accepting the change. Your lender will have different requirements for employment changes effective before the closing date, or after it.  

If you’re changing lines of work, that’s going to present an issue. Lenders have to be assured that your employment shows continuity.

Same goes for accepting a pay cut. That changes your financial profile. Your mortgage approval hinges on the lender’s understanding that you have a stable level of income — up until closing day, and beyond.   

If things change, the lender might agree to pause your application. In any case, tell your mortgage consultant what’s going on. You’ll want to avoid any appearance of deception on your part.

The lender will likely find out soon anyway, because:

• Lenders call applicants’ employers in the course of final employment checks in the days just before borrowers sit down to close on their loans.

• At the closing table, the borrower gets a paper to sign, confirming no change in the job has occurred.

You can head off confusion by constant communication with your mortgage consultant. If you have a new job lined up in the same field, and expect to get your first pay stub before closing, your lender might accept this as showing continuous income.

Why It May Be Best to Try to Keep Your Loan Application Active

If you cancel your loan application, you have to give up penalty fees, application fees, and the money you’ve placed in escrow. Also, backing out of a loan dings a credit profile — a factor to be overcome later, when you’re back and ready to buy.

Looking for a path to homeownership? Consider taking another look at down payment assistance.

To get back on solid footing with your lender, see if you can:

• Tap retirement funds or extra sources of regular income.

• Let a co-borrower apply for the loan (in addition to you, or in your place).

• Lower the loan amount and find a less expensive home if you’re not yet under contract.

As your agreement could be changing, expect possible delays with the final loan approval and closing date.  And if you’ve signed a contract with a buyer for a home you currently own, you must abide by your agreement.

If you are only laid off temporarily, the loan underwriter may request proof of your ability and intention to resume your job. Your mortgage specialist might ask you to submit a personal statement that explains the situation, and your intent to stay on your employment track. Any pay that you do collect during temporary unemployment can help you hold onto your loan eligibility.

How to Deal With a Job Loss After Closing

If no changes happen until after closing, you’re set. Your lender or another mortgage servicer will administer your account. They’ll send you to a website where you’ll set up auto-pay to submit your monthly payments to reduce the loan balance and interest, and top off your escrow account. You’ll get a letter from the servicer letting you know they’re handling your account. This is the company you turn to with any questions about your mortgage once you’ve received your deed.  

Now, say you get unexpected news about a layoff, or otherwise run into debt payment issues. What now?

Your emergency savings should allow you some time to look for a new post, possibly collecting unemployment as you look. Your path ahead might also include:

• Renting out a portion of your home. Note: If, any time after closing, you decide to rent out your home, talk with your loan servicer and be sure this won’t break your mortgage agreement. Check with your insurer, too, for proper coverage. Look out for any restrictions on your ability to rent, including any limits that your homeowners’ association has set (if applicable).

• Asking the mortgage servicer about a possible loan payment deferral until your situation stabilizes. For a new borrower, this might be hard to get.

• If you have mortgage protection insurance, look into what it covers. MPI might cover your repayments during your break in regular income.

Although you need not tell a lender anything about your job after closing day, explaining your situation to your mortgage company could bear fruit. A loan servicer has guidance and resources for borrowers in financial stress.

Summing It Up

Expect a postponement of your closing date if you have to deal with a significant job change.

You might need to borrow a smaller amount, or you might need to wait until you get back on solid footing. But don’t assume. The bank or credit union is in the business of lending, and wants you to succeed. So, don’t think offering creative income ideas would be silly. Good mortgage specialists know good-faith borrowers when they see them, and will advocate for you with the underwriter if they can.