What happens if you lose your job during the mortgage process?
Quick insights
- While losing your job during the mortgage process doesn’t automatically end your homebuying plans, lenders may re-evaluate your application.
- Receiving a final mortgage approval after a job loss often depends on your ability to show alternative income or whether your lender allows adjustments before closing.
- Communicating quickly with your lender is an important step to protect your chances of closing.
Losing your job while buying a home might make you think your plans have hit a wall. The mortgage process has many moving parts, and sudden unemployment can make your purchase feel at risk.
However, experiencing job loss while you’re in the middle of getting a mortgage doesn’t mean you have to walk away. Depending on your finances, timing and the lender’s requirements, you may have options to adjust your application before closing.
Can you move forward with your application without a job?
You may want to move forward with your mortgage application even after a job loss, especially if you still have other sources of steady income. Lenders generally consider all income sources that can be verified. Once your employment changes, your lending file is typically re-evaluated by the lender’s mortgage underwriting department.
Depending on the situation, here’s what may happen:
- Your mortgage application could be delayed while your income situation is re-evaluated.
- You may be approved for a lower loan amount based on your remaining verifiable income.
- Your loan application could be denied depending on how the lender evaluates and determines your income.
If you’re applying for a mortgage when you’re self-employed or transitioning income sources, mortgage lenders look closely at the consistency, reliability and overall ability to repay the loan.
Should you tell your lender about your job loss?
Yes, you must inform your lender about your job loss. Before closing, you will sign a document stating that all application information is accurate. While unemployment may present challenges, honesty and transparency help. The faster you inform your lender, the sooner they can help you create a plan.
Steps you can take if you lose your job while buying a house
If you lose your job, don’t lose hope. Taking immediate action may increase your chances of a positive outcome. Here are four steps to take if you become unemployed during the mortgage process:
1. Pause your application
Contact your lender immediately after losing your job. Explain your situation, ask about your options and request a temporary pause on your application while you regroup.
2. Secure a new job
Finding new employment may need to be a top priority, particularly if the job you lost was your only form of income. Here are some tips that may boost your job search:
- Reach out to your network: Let friends, family and social media contacts know you are looking for work. If needed, update your resume and online profiles.
- Highlight your immediate availability: This could be a major selling point for employers who need quick hires.
- Be open to new fields, but be careful: Branching out can help you find work faster. However, industry changes can be viewed as risky by lenders.
3. Reduce your loan amount
Being approved for a large mortgage or jumbo loan after a job loss can be even more challenging. However, your lender might be willing to approve a smaller loan amount. This might mean considering a larger down payment or a less expensive home.
4. Look for alternative income sources
Typically, someone will have to provide proof of income to qualify for a mortgage. After a job loss, whether your income is less or more, the new income information could change the mortgage approval amount. Showing alternative income sources can help keep your application on track.
Lenders consider non-traditional income—like freelance, contract or gig work—if it is consistent, reliable and well-documented. The key is demonstrating a pattern of regular income and providing documentation to prove its stability. When evaluating you as a borrower, lenders want confidence that you can manage monthly mortgage payments.
Should you cancel your mortgage application?
Canceling your loan application isn’t always the right first move. When you lose your job during the homebuying process, pause and evaluate your finances, savings and ability to replace your income quickly. Communicate your employment situation and latest income information to your lender. You may be able to adjust your loan amount or proceed once your income stabilizes. If you have locked your interest rate, there may be charges to keep the rate until you are ready to proceed with the approval process.
If your financial situation has changed drastically with no clear path to steady income, canceling might be the right option for you. Throughout your mortgage process, speaking with a Home Lending Advisor can help you make an informed decision.
In summary
Losing your job during the mortgage process does not automatically end your chances of buying a home, but you should inform your lender right away. They will need to re-evaluate your loan application based on your remaining savings or alternative income sources. To keep your home purchase on track, you can pause your application, try to secure a new job quickly or reduce your total loan amount. Ultimately, communicating quickly with your lending advisor helps you explore available options.
