Here's What Happens When You Lose Your Job Before Your Mortgage Has Closed

There are different factors mortgage lenders take into account when approving (or denying) home loan applications. One such factor is your credit score, and the higher it is, the more likely you are to gain mortgage approval. Another factor is your income, and that makes sense.

Many people borrow hundreds of thousands of dollars to finance a home purchase. Your lender is apt to want reassurance that you'll be able to pay back your mortgage over time. And showing your lender that you're employed is a good way to give it that confidence.

But what if you lose your job after getting approved for a mortgage, but before you've closed on it? It's a scenario some people might be facing this year given the string of layoffs we've seen over the past few months. In fact, there have been over 191,000 tech layoffs alone since the start of 2023, according to Layoffs.fyi.

In that situation, you may not lose your mortgage -- but it's a possibility. And so it's important to reach out to your lender as soon as possible to discuss your options.

Your mortgage isn't necessarily doomed

It stands to reason that if you've applied for a mortgage on your own and no longer have a job, your lender is going to have a hard time letting you finalize that loan until you're gainfully employed again. But if you applied jointly for a mortgage with a spouse, and their income is enough to support the amount you're borrowing, then your mortgage may not end up in jeopardy.

As an example, let's say you earn $60,000 a year and your spouse earns $140,000. Based on your joint income, you might qualify for a $300,000 mortgage. But if you only applied for a $200,000 mortgage, you might still be able to borrow that sum as long as your spouse hasn't lost their job.

Know your options

Let's assume that you've either applied for a mortgage on your own, or that the loss of your income is such that you no longer qualify for the loan you thought you were getting. In that case, your lender might have different options for you.

One is to pause your mortgage application and pick back up once you have a new job. You may, however, need to get your seller to agree to a delayed closing for this to work, and that's something you'll need to negotiate.

Another option may be to modify your mortgage application so you're borrowing less. If so, and you have a joint application pending, your remaining household income might be enough to cover a smaller loan.

You may also be able to pull out of your home purchase and just cancel your mortgage application outright. Doing so could mean losing the deposit you put down on the home, though, so you'll need to think things through carefully.

Losing a job can be a blow, especially when you're in the process of trying to close on a mortgage. You won't necessarily lose your mortgage if your job goes away, but the only way to know is to reach out to your lender and see what the next steps are.