Job Loss During Mortgage Process

Job Loss During Mortgage Process And How To Proceed To Close

BySapna Sharma
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This BLOG On Job Loss During Mortgage Process And How To Proceed To Close Was UPDATED On May 6th, 2019

Income is probably the most important factor in qualifying for home loans.

  • Home Buyers can have prior bad credit, prior bankruptcy, prior foreclosure, and low credit scores and as long as they have documented income, they can qualify for home loans
  • Having perfect credit, high credit scores, and good assets are great but without documented income, applicants will not qualify for a mortgage
  • The lender will only approve, process, and close on the mortgage only if borrowers have a full-time job or stable income
  • Job and/or income needs the probability and likelihood to continue for the next three years
  • Ability To Repay Mortgage rules and regulations were implemented and launched by the CFPB home buyers are able to pay for a mortgage payment
  • This requirement is not just a lender’s guidelines but also federal lending guidelines
  • Borrowers will not qualify with Job Loss During Mortgage Process

Income Qualification In Mortgage Process

Job Loss During Mortgage Process

Before a mortgage underwriter issues a pre-approval, the loan originator will require to provide two years tax returns, two years W-2s, and 30 days of paycheck stubs to make sure borrowers qualify.

  • Lenders will also do a verification of employment
  • They will send a questionnaire to the employer to complete the following:
    • how long worked there
    • income
    • how much overtime income past two year
    • bonus income made the past two years
  • Besides verifying income and employment status, the lender needs to feel comfortable with the likelihood of continued employment for the next three years
  • Continued income for the next three years makes lenders feel comfortable with borrowers making mortgage payments
There are two phases of verification of employment for most mortgage lenders:
  • The initial and most important verification of employment is done during the mortgage process
  • It is a written verification of employment
  • Most, not all, lenders will also do a verbal verification of employment prior to issuing a clear to close
  • A clear to close is when a lender is clear to fund the mortgage loan

Loss Of Job After Lender Issues Clear To Close

A mortgage loan closing can happen the same day or several days or a week or two after getting a clear to close.
  • There are times where borrowers Job Loss During Mortgage Process after lender issues a clear to close
  • This can definitely be a deal killer
  • Most borrowers know this
  • Many still want to purchase and close on their home even though they have a loss job
  • They feel confident that they can still afford their monthly mortgage payment
  • This is because they feel confident they can easily re-gain employment
  • Unfortunately, this is not always the case
  • The borrower will likely not be able to make their housing payment
  • Their brand new loan will likely go into default

Verification Of Employment Prior To Clear To Close

What To Do With Job Loss During Mortgage Process: If borrowers had job loss during the mortgage process, they should immediately notify their loan officer.
  • If borrowers get another job and do not default on a mortgage loan, then it will be a non-issue
  • However, if new borrower default on a new mortgage payment, the lender will definitely open an audit and investigation on file
  • They will do some intense background checking
  • If they find out borrowers had job loss during the mortgage process and closed, this will create problems
  • If they find out about job loss during mortgage process or had someone from the Human Resources lie on behalf of borrowers everyone involved can get charged with mortgage fraud
  • Mortgage fraud is a felony
  • An excuse of just playing dumb and telling federal fraud investigators will not work
  • Mortgage fraud is punishable up to 30 years in federal prison
  • No home loan in this world is worth being investigated for mortgage fraud
  • In the event, if the borrower has a loss of a job, notify the lender immediately
  • Once re-gaining full-time employment, borrowers can get approved for another home loan
  • All they need is a verification of employment from a new employer and 30 days of paycheck stubs from new full-time job to be able to close on loan

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