What would happen if you’ve been furloughed during a Boston condo purchase?

Boston Condo for Sale Search

What would happen if you’ve been furloughed during a Boston condo purchase?

• The Income Stop: Even if your employer promises a return date, lenders generally treat a furlough as zero income. Because mortgages are underwritten based on stable, ongoing revenue, losing your active pay structure means you no longer meet the Debt-to-Income (DTI) requirements. [1]
• The Exception (Government Furloughs): If your furlough is the result of a federal government shutdown, special exceptions may apply. Agencies like Fannie Mae and Freddie Mac sometimes allow the use of older pay stubs or waive immediate verification until the government reopens. However, under rules established for extended shutdowns, you may be required to prove you have a minimum of two months of cash reserves tucked away after closing to absorb the risk. [1, 2]

• If you have a Financing Contingency: This is your primary shield. If your lender issues a formal loan denial due to the furlough before the contract’s financing deadline, you can safely back out of the deal and receive a full refund of your earnest money deposit. [1]
• If the Financing Deadline Has Passed: If you are clear to close, the contingency expires, and you are subsequently furloughed, you face a severe financial trap. Failing to close means you are in breach of contract. The seller is legally entitled to keep your deposit—which typically represents 5% of the purchase price in the Boston market (e.g., $30,000 on a $600,000 condo). In rare, worst-case scenarios, the seller can sue you for specific performance or damages. [1]
• Condo Document Review Contingency: If you are still in the early stages of reviewing the HOA budget, rules, or meeting minutes, you may be able to use a standard condo review rider to withdraw safely, depending on how the clause is worded. [1]

1. Notify Your Real Estate Attorney: In Massachusetts, closing attorneys handle the legal transfer. Review the exact language of your P&S agreement with them immediately to see if you can still back out under an active contingency.
2. Talk to Your Lender Honestly: Do not try to hide the furlough. Intentionally concealing an employment change before closing constitutes mortgage fraud. Ask your loan officer if they participate in temporary shutdown extension programs or if adding a co-signer could save the loan.
3. Request a Closing Extension: If the furlough is strictly short-term, your agent can negotiate an extension to the closing date with the seller. Sellers are often willing to wait a few weeks rather than put the condo back on the market, especially if you agree to release a portion of the deposit or pay a fee for their carrying costs. [1, 2, 3, 4, 5]

What would happen if you’ve been furloughed during a Boston condo purchase?

When mortgage underwriters approve a downtown Boston condo loan application, these underwriters base your loan application on several financial factors, and the most important is your income and your ability to repay the mortgage. Other factors are also included, but lenders focus more on what they perceive as the applicant’s likelihood of being able to make not only mortgage payments but also other related expenses to the condo purchase, such as property taxes, condominium fees and among other expenses. As stated, the most important factor is the ability to repay the loan and  you being able to hold on to their jobs. To this effect, underwriters will review the work history of every applicant and conduct employment verification at various times during the loan process, including just before closing.

Boston Real Estate and the COVID-19 Outbreak

But what would happen if you were told by your employer you’re going to be furloughed, or worse you lost your job, Should there be a sudden loss of household income prior to closing, the following may happen;

The Bank Will Stop the Process on Your Boston Condo Application

Depending on the banks pipeline, the bank may decide to call off the closing and archive the application. This is more likely to happen with refinancing than with purchase of Boston condo, but if the bank is very busy, like with the COVID-19 outbreak, chances are the manager of the loan application may think canceling the process is the best option. Keep in mind the recent coronavirus outbreak has swamped banks, so they may review your application at a later date.

You Can Attempt to Add Sources of Income

If the loan file was cleared for closing with just one prospective borrower, another household member who is an income earner could be added. Keep in mind that income sources don’t always have to come from jobs. They can also come from retirement accounts, annuities, trusts, and periodic royalty payments.

Boston Real Estate Brokers & Loan Officers Will Try to Save the Deal

If you’re purchasing a condo in downtown Boston and you lose your job through termination or layoff, you must notify your agent, bank and/or loan officer immediately. In many purchase loan situations, the mortgage and Boston real estate brokers will be interested in saving the deal because they expect commission payments. One way to save the loan would be to convince underwriters to look at other application factors that can justify closing even if you haven’t spent 30 days at your new job or you’ve been temporarily furloughed due to the coronavirus outbreak.

Boston Condo Down Payments Need to Be Recovered

With the uncertainty of the job market due to the coronavirus, it would be risky to assume you won’t be out of work (or furloughed) before the closing date. For this reason, you should ask your Boston real estate broker to include a protective clause in the purchase contract to ensure you can recover any earnest money deposits should the closing be called off, and make sure to ask how long it would take to recover these funds so you can plan your personal finances accordingly.

Boston Real Estate and the Bottom Line

If you’re buying a Boston high rise condo, one of the smartest choices you can make is to work with experienced downtown Boston real estate agents with comprehensive knowledge about financing issues and buying a Beacon Hill or Seaport condo. Here at Ford Realty we can find you the Beacon Hill condo of your dreams. Please feel free to contact us  today at 617-720-5454 or via email at realtyford@yahoo.com

Boston real estate for sale search