When mortgage underwriters approve a residential loan application, they do so based on various financial factors, and the most important is the applicant’s ability to repay the loan. Other factors, such as collateral, credit record, and property values, are also considered, but lenders focus more on what they perceive as the applicant’s likelihood of being able to make not only mortgage payments but also related expenses, such as property taxes and homeowners insurance. In the United States, the ability to repay mostly hinges upon borrowers being able to hold on to their jobs. To this effect, underwriters will review the work history of every applicant and conduct employment verification at various times during the loan process, including just before closing. Should there be a sudden loss of household income prior to closing, the following may happen.
The Bank Will Stop the Process
Depending on the mortgage lender’s pipeline and the economic climate, the bank may decide to call off the closing and archive the application. This is more likely to happen with refinancing than with purchase loans, but if the bank is very busy, chances are operations managers may think canceling the process is the best option. Keep in mind you’ll have a fresh application on file with the lender, which means the bank will be more than happy to reactivate things after you return to work.
You Can Attempt to Add Sources of Income
If the loan file was cleared for closing with just one prospective borrower, another household member who is an income earner could be added. Keep in mind that income sources don’t always have to come from jobs. They can also come from retirement accounts, annuities, trusts, and periodic royalty payments.
Brokers, Agents, & Loan Officers Will Try to Save the Deal
If you plan on leaving your job for a better one, make sure to inform your real estate agent and mortgage broker or loan officer. You may have to work for 30 days or two payroll periods so underwriters can evaluate conditions at your new job. If you’re purchasing a condo in downtown San Diego and you lose your job through termination or layoff, you must notify your agent and loan officer immediately. In many purchase loan situations, the mortgage and real estate brokers will be interested in saving the deal because they expect commission payments. One strategy to save the loan would be to convince underwriters to look at other application factors that can justify closing even if you haven’t spent 30 days at your new job.
Earnest Money Deposits & Down Payments Need to Be Recovered
With the uncertainty of the American job market in 2020, it would be risky to assume you won’t be out of work before going to the closing table. For this reason, you should ask your real estate agent to include a protective clause in the purchase contract to ensure you can recover any earnest money deposits should the closing be called off. You generally don’t have to worry about a down payment made to the bank because it’s held in escrow, but make sure to ask how long it would take to recover these funds so you can plan your personal finances accordingly.
If you’re buying a home, one of the smartest choices you can make is to work with experienced real estate agents with comprehensive knowledge about financing issues and buying downtown San Diego real estate. The professionals at 92101 Urban Living can help you find the condo, loft, or penthouse that’s perfect for you. Give us a call today at 619-649-0368.