What to do when applying for a job loan
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The Covid-19 pandemic has hit many people’s finances. Perhaps you have been fired from your job, or perhaps you are a gig worker who has seen a significant drop in income. Even if you kept your job while adopting a work-from-home model, we learn that things are not static. As companies reorganize for the new normal, further organizational changes could be on the horizon.
But even in times of economic uncertainty, many of us move forward with our life plans. Whenever you are buying a new car, considering options for a personal loan, or planning to buy a new home, your employment status plays an important role in your borrowing.
If you were employed at the time of the loan application and then lose your job, it will have an impact on the loan process.
“If you lose your job, you can expect all of your financial plans to be put on hold, but you may still be able to apply for a loan,” said Baruch Silvermann, CEO of The smart investor. “Although it can be more difficult, it may still be possible to get approval for auto loans, personal loans, and mortgages.”
Your main obstacle will be convincing the lender that you still have the ability to make regular payments on time every month, he explains. “Your lender can consider alternative sources of income such as social benefits, disability pensions, social assistance or pension funds,” continues Silvermann.
Additionally, you may also be able to use your partner or family member’s income by making them a co-signer of the loan, he says.
Ahead, Select offers some tips on how to deal with a job loss during your borrowing process:
It is not a lost cause
Even though you lost your job, according to Silvermann, there are still a number of things that lenders will consider before approving a loan in these circumstances. They include:
Strong credit history
“If you have a track record of on-time payments showing that you can handle your debt responsibly, especially since you lost your job, they may be more inclined to agree,” he says.
Good credit-debt ratio
Access to a qualified co-signer
If you have someone to guarantee your loan who has a strong credit rating, this could be a way to avoid losing a job while on loan approval.
Be accommodating with your lender
When you apply for a loan – including a mortgage – you sign a document stating that you are being honest with facts and figures.
“In general, when you apply for a mortgage loan, you need to notify your lender of a job change. You will sign a statement upon closing that everything on your application is up to date, ”says Mark McArdle, Assistant Director, Mortgage Markets with the Consumer Financial Protection Bureau. “To sign that and withhold relevant information would be a fraud.”
Even if you are unemployed, you have options. “For example, you can pause your application while you secure additional work,” says McArdle. Additionally, if you have other sources of income, you may qualify for the same loan or a smaller one. “Being transparent with your lender and loan officer is the best approach to help you explore your options.”
Here is a breakdown of what to do based on the type of loan you are applying for:
What to do when you apply for a mortgage
Her plan was to take advantage of record-low mortgage rates. You have found your dream home, submitted an offer and completed all the paperwork to get a mortgage. And then comes the bad news. Losing your job is extremely annoying and stressful, so take a deep breath first and give yourself a moment to develop a strategy.
If you lose your job after applying for a mortgage, you must call your lender immediately and be honest with them. Your lender can discuss all of your options, including whether your loss of income is temporary, permanent, or a spouse is still earning income, “says Joe DeMarkey, director of strategic business development for Reverse Mortgage Funding LLC and director of the National Reverse Mortgage Lenders Association.” These Factors can determine how or if you can proceed with the loan and whether there are any programs that can assist you in applying for the loan. ”
What to do when you apply for a car loan
If you are working with a dealership to fund a car purchase and you get a message during the process that you are being fired from your job, the first thing you need to do is share the update with your lender.
If you have an older car that is still getting you from point A to point B, you can postpone your purchase until you get a new job.
If you can’t put off buying a car, you can discuss ways to restructure your loan. One option is to extend the terms of the loan. For example, instead of taking out a three-year loan, extend the terms to five years. This will likely lower your monthly payment.
You may also want to reconsider upgrades. Perhaps you can skip the technology package or do without the expensive extended warranty. All of these small changes can make it cheaper to buy when money is tight.
What to do when you apply for a personal loan
There are many reasons to take out a personal loan, be it a large home improvement project, starting a business, training costs, medical expenses, or a long-awaited purchase like a motorcycle or a boat.
If your job situation changes at the time of applying for a personal loan, consider using one interest-free credit card to finance your project or purchase. For less urgent projects, it may make more sense to postpone your plans until you get a new job.
If you need the cash to pay for your daily expenses while you’re between jobs, there are some personal loan options, although you may not get the cheapest interest rates. Before you get a loan, do some research. Some lenders like that Marcus from Goldman Sachs and LightStream have tools online that can help you find out if you would qualify for a personal loan without submitting a full application.
The approval of a loan does not always depend on just one job. For example, retirees can still apply for and be approved for auto loans, home loans, and personal loans.
But your chances of getting a loan approval increase if you demonstrate a viable ability to repay the loan on the agreed terms. Other sources include your spouse’s income, rental income from a separate property, inheritance payments, or alimony payments.
This additional income could very well influence a loan or mortgage approval in your direction.
If you have no other sources of income, there are still options.
Ask a co-signer
You could ask family or friends to step in to help. Perhaps a parent or sibling could sign your loan.
A co-signer will apply for the loan with you and will be responsible for paying the loan. In addition, if you, the main borrower, cannot make the payments, a co-signer is required by law to repay the loan. You must have a steady income and good credit history to be a co-signer.
Just make sure you have a clear loan repayment plan. Otherwise, missed payments could result in the loan defaulting and seriously damaging the co-signer’s credit history.
Find a new job
It may seem obvious, but it’s best to start looking for a job ASAP, especially if you are in the middle of the mortgage process. This is a good time to get in touch and let them know your situation.
If you’re struggling to find a new job in your industry, consider looking outside of your wheelhouse – your skills can be carried over to a new opportunity.
You can also take a part-time job to supplement your income while looking for a full-time job. Often times, employers hire part-time workers with a plan to develop these attitudes into full-time positions.
Look at the gig economy
Millions of Americans make a living doing freelance work or gig arrangements such as tutoring, ridesharing, bartending, nanny work, landscaping, or doing odd jobs. While mortgage lenders sometimes Be careful with 1099 rolls, careful bookkeeping can help demonstrate the extra income these part-time jobs bring in.
Even though you may find a co-signer or additional sources of income, it is still a good idea to check your budget and finances before taking out a loan after losing your job.
Should you move on with a personal loan for that kitchen remodel, a mortgage for that colonial four bedroom center, or a car loan for that expensive new sedan? Whether or not the loan commitment makes the most sense at this point is something you really need to consider. Are you going to use up your savings, hurt your creditworthiness, or worse, default on your loan and put your co-signer on your credit debt?
There is a risk of taking out a loan if you cannot make the monthly payments due to a job loss. Your job loss will most likely be a short-term problem, but you should seriously consider whether the better option is to defer the loan until you can find full-time work again.
Note to editors: Opinions, analysis, reviews or recommendations expressed in this article are solely those of the Select editors and have not been reviewed, approved or otherwise endorsed by third parties.