Unemployment can affect your client’s ability to purchase a home now and for a few years into the future, so it pays to know how to guide potential buyers who have recently experienced job loss. With the coronavirus pandemic, you may have several clients who have had to put their dreams of being a homeowner on hold, at least for the time being. But, if you are prepared with sound advice, these potential buyers may come to you first for assistance when they are financially ready.
We are currently seeing high unemployment rates in many industries, numbers not witnessed since the Great Depression. This causes worry and disappointment for many people who have long prepared for the joy of home ownership. Many Americans have been laid off or furloughed, and others see signs in their industry that the same fate may be coming for them.
With the financial future of people all across the country turned upside down, the status of ‘jobless’ is likely to hit one or more of your clients. So, how do you console and coach your would-be buyers? What can you tell them to offer reassurance that their plans will not be shuttered forever?
Here’s how to help your clients navigate unemployment and homeownership.
Can Your Clients Buy a Home While on Unemployment?
Whether your clients have recently lost their job or have been unemployed for a while, the unfortunate fact is that their chances of getting a mortgage are slim. Lenders may still lend if one spouse has a substantial income and can carry the loan alone, but this is certainly not a guarantee.
Of course, some real estate professionals work with cash buyers and these types of clients will not see many hurdles. But, any clients who are receiving unemployment checks, or who have recently exhausted their unemployment claims and are still jobless, will probably be turned away for a loan. Even potential buyers who have recently gone back to work after unemployment should expect to be turned down for a mortgage.
Unemployment insurance benefits are considered temporary income and this income will not qualify toward a mortgage. Unemployment may also have a negative effect on homeowners who want to buy a home within the next two years, since two years of tax returns with qualifying income is required for most conventional loans.
The good news is, though, that once your clients have resumed their old line of work or have found a new job, they can begin building toward that streak of employment stability that mortgage lenders want to see.
How Long Will Your Clients Have to Wait to Buy After Unemployment?
In addition to mortgage lenders’ requirement of one to two years of steady income, they also want to see strong credit scores. Some of your recently unemployed clients may have found that they now have trouble paying their bills, which has in turn wreaked havoc on their credit scores.
In some parts of the country, there have been or currently are moratoriums on credit reporting as it relates to the coronavirus pandemic. This gives potential homebuyers the opportunity to work with creditors so that their credit scores do not suffer due to past-due debts. However, any leniencies toward missed payments will surely disappear one day. This means that continued debt trouble is probably going to affect your clients’ ability to purchase a house for several years.
Many people who get behind on their bills, or heavily use credit cards to pay for everyday expenses during unemployment, may also see their debt-to-income ratio rise. This too could hamper any chance of qualifying for a mortgage in the short term.
If you can advise your clients to not take on too much debt during unemployment, as difficult as that may be, you will do them a great service on their home-buying journey. Talk to your buyers about cutting out discretionary spending for the next year or two. And, stress how important it is to keep current on bills.
What Advice Can you Give on Handling Current Finances?
While unemployed, your clients should try to at least pay the minimum payments on all of their loans and other debts. If they are having trouble keeping current on rent or mortgage payments, they need to contact their landlord or mortgage holder and ask for a payment plan or deferment.
Some debt, like student loans, may be put into forbearance. Auto payments, utility bills and insurance premiums might be able to be adjusted in order to relieve monthly debt and save credit scores.
It is completely possible to rebound from unemployment and purchase a dream home, but the solutions to future homeownership will take time. As a real estate professional, it is your job to reassure your clients and let them know that their current setback is not the end of the world. Let them know that they have options to get back on track, and when they do, you will continue to be there to offer assistance.