Lost job a week before closing with a mortgage. Options?
I unexpectedly lost my job a week away from closing on a condominium with a mortgage.
I wasn't worried… until I realized that the mortgage is conditional on my creditworthiness remaining the same. From asking around, it sounds like no bank will lend to someone without a job, even if they have a history of being employed and enough savings to make mortgage payments for years (which I do).
I've put in a 10% deposit. I'm currently going over my options. Here's what I have so far:
Talk to my old employer and ask to stay on payroll until after closing.
Spoke to the bank, they won't lend if I know that the job isn't permanent.
Get a new job right away.
This bank (Chase) won't lend unless I've been employed for 30 days, but a different bank (Citizen's) would lend if I have an engagement letter from a new company. I'm not a fan of this option, since I wanted to take time off before jumping into a new full-time job — which my savings would've made possible.
Try to back out of the sale.
My attorney thinks that I might be able to back out of the sale and recover my deposit on a technicality. I would prefer not to do this, because it would suck for everyone involved and I like the apartment, but right now it's the leading option.
Try to pay cash, mortgage later.
I have just barely enough cash and stocks to pay for the apartment outright. I might be able to borrow money from family to cover living expenses until I get a job and mortgage the house. This lets the sale go ahead, and eventually things should end up as they would've been if I closed normally. But, this feels highly risky. Should it?
Did I miss anything? What's the smart decision here?
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The thing with your last option is that the cash-out mortgage is treated differently than purchase mortgage, with regards to taxes. Specifically, tax deduction is limited to 0K mortgage instead of M (or a bit higher even).
Other than that - you've covered your options, and its up to you to decide what to do.
For posterity, here's what happened:
Short version
A family member offered to co-sign.
We found a different bank which offered a (smaller) mortgage.
We did that. I later refinanced to free the family member.
Long version
A family member offered to co-sign for a mortgage, if it would help.
The original bank (Chase) said that their underwriters would require me to be employed and couldn't provide a mortgage in this situation.
The family member talked to another bank (Wells Fargo) with whom they already had a mortgage, and was told that they could provide a mortgage, but it would be smaller than the original. (I'd be happy to provide the broker's contact info to anyone, off-board.)
We decided to go with this plan. I sold some stocks.
At closing, we saw that the mortgage listed me a non-occupant borrower (which apparently allowed my assets to be considered and not my income). This wording spooked me, but after re-reading the non-occupant borrower rider a few times, I felt comfortable that a non-occupant borrower could occupy the home, just wasn't required to. Signed, closed, moved in.
After a much-needed 6-month break, I started a new job.
After a while, I refinanced (no cash out) to get a slightly better rate and, more importantly, absolve my family member of their responsibility.
I continue to live in the apartment and work at the new job. I think it worked out about as well as it could have.
If you have a family member with sufficient funds to lend, you might consider writing a deed that gives them a percentage of ownership in the property in exchange for a loan, then you could later take a mortgage to pay back that loan and purchase that percentage of the property back.
If it was me, I would probably just pay cash and try to get a home equity line of credit for emergency funds once I started working again. All the money I would have paid into a mortgage, and perhaps more--I would invest to rebuild the investment account as quickly as possible.
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