Blog posted On August 05, 2020
Earlier this year, many American workers were furloughed or laid off due to closures and restrictions brought on by the coronavirus pandemic. If you were planning to buy a home this year, your plans have likely been put on hold. A period of unemployment will impact your ability to buy a home like any other income disruption. It will not make it impossible to buy a home ever, you just may need to postpone your purchase until you’ve reestablished your income.
If you’ve become unemployed during the pandemic, here’s how that will impact your ability to buy a home:
If You Already Applied for a Mortgage…
When you apply for a mortgage, lenders caution you against making any major financial changes. Although it’s out of your control, getting laid off is one of those changes because it lowers your qualifying income. Unemployment benefits are only considered “temporary income” and you cannot use that to qualify for a mortgage loan. You will have to reapply for a loan when you establish a work history at another job.
If You’re Still Searching for a Home…
You will want to wait to apply for a mortgage until you find a new job or go back to work at your former job. To qualify for a mortgage, you will need to provide proof of stable income, so depending on how long you were unemployed, you may have to wait until you’ve worked at your new job for at least six months. Most mortgage lenders will ask for the past two years’ proof of employment through tax returns or pay stubs.
If You’re Not Ready to Buy a Home…
If buying a home is farther into your future, temporary unemployment will most likely not impact your ability to qualify for a mortgage. There are still some things you should watch. When your income is disrupted, you may choose to use a credit card to cover costs. This will impact your credit score and your debt-to-income ratio depending on how much you borrow and how long it takes to pay back. Before applying for a mortgage, financial experts recommend starting credit repair six months to one year in advance. That way, you have time to improve your score if it does take a hit during your unemployment.
As of June 2020, over 44 million American workers filed for unemployment. Industries that were hit especially hard by closures include travel, hospitality, fitness, and other personal services. Some cities and states are still facing lockdowns while others are starting to resume near-normal operations. If you experienced temporary unemployment you are not alone. Homeownership is the foundation of the American Dream and still within reach. Let us know if you have any questions about how unemployment could impact your ability to buy a home.
Sources: Fortune, Realtor.com