Losing your job is stressful. When it happens in the middle of buying a home, it can feel like the floor has dropped out from under you. You may be wondering if your application is still valid, what your lender needs from you, and how long you will have to wait before getting back on track.
Support is available to help you through it. Lenders have processes in place for this situation. Here is what to expect, what your options are, and what you can do right now.
It would cause the mortgage application to be denied, since lenders need to verify that you have a stable, reliable income.
The steps of buying a home are applying for a mortgage, going through appraisal and underwriting, and closing. These stay the same regardless of what is happening in your personal finances.
What changes is your eligibility to move forward at any given time. The employment requirements for a mortgage typically include a steady income source and a two-year work history. If there is a gap in your employment record, lenders will want to know about it. It needs to be explained and documented before you can apply again.
Whether you were laid off, furloughed, or let go for any reason, your lender is required to close out your current mortgage application. You'll receive a letter that explains the decision. Your purchase agreement will also be cancelled.
"Mortgage regulations require that we verify a borrower's ability to repay," says Betsy Mills, Director of Lending at TCHFH Lending, Inc. "This is mandated so that lenders aren’t putting borrowers into mortgages that they’ll never be able to afford to pay back."
This can be hard news to hear, but if you applied under the Twin Cities Habitat program, you’ll still be part of it even after a denied application. You return to financial coaching, and your coach will guide you through next steps while you look for new work.
Before you can buy, you’ll need to be mortgage-ready again. In most cases, that means holding steady employment for at least six months. Some people can move sooner, such as those who start a new job right away. Six months is a typical timeline for most homebuyers.
Once you meet the employment requirement, you’ll need to provide updated income documentation, like recent pay stubs, a new employment verification letter, and possibly updated bank statements. The specific requirements depend on your lender and your situation.
TruePath Mortgage is built around the reality that first-time homebuyers' financial situations are not always straightforward.
If you have questions, the TruePath Mortgage team at TCHFH Lending, Inc. can help. They’ll walk you through what your denial letter means, what documentation you will need when you are ready to apply again, and what eligibility criteria apply to your circumstances.
If you're out of work, the best thing you can do as an aspiring homeowner is "start looking for new employment," Mills says. If you were furloughed, stay up to date on your return-to-work timeline and any changes that come up.
Keep meeting with your financial coach so you know what to focus on in the meantime. Steady employment will help you become mortgage-ready again and ensure you can cover the long-term costs of owning a home, like maintenance, renovations, and upgrades.
Job loss is a setback, but it does not have to mean the end of your homeownership plans. It may take some extra time, and your financial coach will be there to help you prepare.
Focus on finding steady work, keep working with your financial coach, and use the time to keep learning about the process, so you are ready to move quickly when the moment comes.