Lost job a week before closing with a mortgage. Options?

Question

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?

Answer 1

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 $100K mortgage instead of $1M (or a bit higher even).

Other than that - you've covered your options, and its up to you to decide what to do.

Answer 2

For posterity, here's what happened:

Short version

1. A family member offered to co-sign.
2. We found a different bank which offered a (smaller) mortgage.
3. We did that. I later refinanced to free the family member.

Long version

1. A family member offered to co-sign for a mortgage, if it would help.
2. The original bank (Chase) said that their underwriters would require me to be employed and couldn't provide a mortgage in this situation.
3. 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.)
4. We decided to go with this plan. I sold some stocks.
5. 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.
6. After a much-needed 6-month break, I started a new job.
7. After a while, I refinanced (no cash out) to get a slightly better rate and, more importantly, absolve my family member of their responsibility.
8. 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.

Answer 3

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.