How soon can you quit your job after closing on a house?

Buying a house is an expensive decision, so most people need a mortgage to do it. But getting a mortgage is a generally complicated process that requires that you have a source of income. So, how soon can you quit your job after closing on a house?

There’s no specific grace period between closing on a house and quitting your job. But you should wait till the lender has funded the mortgage so as not to affect your chances. Also, check the loan terms to ensure you’re not breaking any and consider your income source and savings before quitting.

Regardless, if you’re planning to buy a home soon or even in a few years, you should do it before quitting your job. This applies whether you’re planning to switch career fields, jobs or you’re quitting to become self-employed. Here, we discuss quitting your job after getting a mortgage and what to consider.

When to Quit Your Job After Getting Mortgage

You can quit your job any time after the lender funds the mortgage. Once you close on a house, sign the mortgage papers, and get the money, the lender can’t revoke the mortgage as long as you make the necessary payments. However, if you plan to quit your job after closing on a house, you should make sure that you complete the entire process and perhaps wait a few months before you quit.

The best time to quit would be after you’ve paid for the house and got the keys because it’s only at this point that the lender cannot rescind the loan. In many situations, the lender will call for a work reference or updated employment letter before transferring the money.

What to Consider When Quitting Your Job After Signing a Mortgage

Quitting your job after committing to a mortgage is a big deal, so you should consider the following before you go ahead with the decision.

1.   Source of income

If you’re planning to quit your job after getting a mortgage, it’s important you consider if you have another source of income. You have to meet the mortgage repayment so having a source of income that allows you to do this is very important. Generally, people quit a particular job because they have another offer or want to start a business. If you’re starting a business, you must have some revenue commitments, such as long-term contracts waiting for you before you quit your job. A job offers a consistent revenue stream, and that’s something the lender cares about very much. So before leaving your steady income job to pursue the entrepreneurial dream, make sure there’s a certainty of consistent income.

2.   Savings

Another thing you need to consider is a buffer. This is enough savings to cover up to 6 months of your mortgage payments. No matter your reason for quitting your current job, it’s important to prepare for any emergencies and unforeseen circumstances. With six months’ savings in place, anything that delays your expected cash injection won’t affect your ability to pay your mortgage on time.

3.   Check the Loan Terms

Most mortgage and home loan contracts contain insecurity clauses which can be found in the section that provides for loan acceleration in some situations. The insecurity clause allows the lender to accelerate the loan if there’s a reasonable belief that the borrower won’t be able to pay the loan. Acceleration means that the lender will demand payment of the loan in full within a period and will foreclose the loan if that’s not done. This only happens in rare cases when it comes to home mortgages, and being unemployed is unlikely to cause this as long as you’re meeting your payment obligations.

Also, quitting your job after closing might affect the mortgage if that type of loan is only open to certain professions or employers, and by quitting your job, you leave that class. There could be a penalty clause if you don’t remain in the same role for a specific time after getting the loan. The same also applies if quitting your job will lead to the house becoming a rental property, such as when you’re quitting for a job in a different location. Some mortgages require that you live in the property for a few months.

Factors that affect your chance of getting a mortgage

Several factors might affect your chance of closing on a house. Some of these factors include:

1.   Income

Your ability to pay back the loan is perhaps the most crucial thing the lender will consider. Usually, they’ll do this by looking at your employment. The income requirements could be very strict as the lender focuses on stability above everything else.

2.   Employment History

The lender will consider your employment history before they decide to offer you a loan. A career shift might affect your chance. For example, if you leave one industry for another different one, you might need to work for a couple of years, at least 2, before you can apply for a loan. This applies even if you’re earning the same income or higher as lenders look at stability. The same thing applies if you’re starting your own business. The lender will usually ask for tax returns for two consecutive years and profit-loss statements. For those who’ve not been in the business for up to two years, the profit loss statement and two years previous work history preferably in the same field.

3.   Downpayment

The minimum down payment that a person must make on a mortgage in Canada is 5%. The required down payment depends on the loan’s value, but anything below 20% downpayment requires that you get mortgage loan insurance. Lenders will examine the source of your downpayment when considering your loan application, so borrowing the down payment might hurt your chances.

4.   Credit Score

Your debt and repayment history determines your credit score, which is another factor the lender will consider. A credit score determines your creditworthiness and affects the lender’s perception of you. A good credit score improves your chance of getting a mortgage.

In Conclusion

Quitting your job after closing on a home is not usually the best decision, but if there’s a good reason to do it, nothing is stopping you. Just make sure the loan has been fully funded before you give notice.

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