Changing jobs, quitting, or altering income before closing can jeopardize your loan and earnest money. Eliminate risk effectively with our expert insights here!

Suddenly Changing Jobs Before Closing Risks Losing Earnest Money?

Changing jobs during a loan application is tricky. Inattention can cause delays in closing loan applications. Worse, it can risk your Earnest Money and make you unqualified.

For example, imagine you earn $10,000 monthly at Company A. As your loan’s closing date nears, you switch to Company B. This change poses two potential risks.

The risk of losing Earnest Money arises from changing jobs.

Waiting for Pay Stubs May Cost You

The first is that your income remains at $10,000 per month. However, you’ve moved to Company B and haven’t received any pay stubs yet. The lender cannot verify whether Company B will continue to pay you the same as Company A did. As a result, you must wait approximately 30 days for your first pay stub from Company B. Only then can the loan proceed to closing. 

This delay might cause you to miss your initial closing date. If an extension isn’t granted, you may need to pay part of the deposit.

Lower pay may result in even worse outcomes.

In the second scenario, you change companies, but your new company pays less than the previous one. Suppose your income needs to be $10,000 to qualify for the loan, but now it drops to $8,000 with the new company. 

Consequently, you no longer qualify for the loan. If you are in the process of buying a house, this could lead to the forfeiture of your deposit as well.

Earnest Money May Be Lost After Announcing Job Resignation

The next scenario is riskier! You haven’t quit yet or lined up a new job, but you’ve shared your plan to resign. This could threaten your Earnest Money.

Mistiming your decisions may result in the loss of earnest money.

How Telling Your Employer About Resignation Can Risk Your Home Loan

You’re getting ready to buy a house and want a job closer to it. Telling your current employer you plan to resign after closing your loan can cause big problems.

Why is this a problem? Lenders check with your employer before finalizing the loan to confirm you’re still working there. If your employer says you’re staying, the lender will fund the loan. But if they say you’re leaving, the lender might worry about your ability to repay the loan and could refuse to close it.

Protect Your Loan Approval: Timing Your Job Transition Right

So, it’s essential not to mention any job changes or resignations until your home loan is completely finalized. Talking about it too soon could make your employer accidentally tell lenders you’re leaving, putting your loan at risk. Always wait until your loan closes successfully before changing jobs.

How Changing Income Structure Wipes Out Your Earnest Money?

Switching from W2 to 1099 income may offer benefits. However, it is a startling nightmare if you are at the final stages of loan applications. It compromises Your Earnest Money.

Income Structure Changes – A Threat to Your Earnest Money

W2 income offers guaranteed and stable earnings.

This third mistake is known mainly to seasoned loan processing experts like us. We can provide you with knowledgeable advice on this issue. It involves changing from a W2 to a 1099 income type. W2 employees usually have stable, employer-guaranteed salaries that lenders trust to ensure steady income. This stability makes lenders confident about funding the loan.

Loan Approval Challenges when Switching to 1099 Status

Switching to a 1099 status makes you self-employed with uncertain earnings. This change causes financial instability, worrying lenders about fluctuating incomes and reliable loan repayments.

If you’re 1099, you must show income stability for two years, or switch back to a W2 job to qualify. This can take time, possibly causing you to miss your loan’s closing deadline.

The Financial Impact of Not Closing On Time

Such delays might force you to forfeit your earnest money deposit or pay daily late fees if the seller still agrees to sell. For example, if a home rents for $4,000 monthly, a delayed closing could cost you an extra $4,000 per delayed month.

Avoid These Three Mistakes to Safeguard Your Earnest Money

Those are the top three mistakes that can delay your loan closure and cost you your earnest money. This knowledge will help you prepare and strategize effectively during the home loan application process. Equip yourself to avoid such costly setbacks. 

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