In the traditional lending process, a bank will require you to provide proof that you are employed and have a stable source of income at the time of closing. For the most part, lenders will not close on a mortgage loan if you are getting unemployment benefits. Even if you are able to establish an equity position in the property with a substantial down payment, the bank will still want to know that you have the means to make the monthly mortgage payments.
Sometimes workers are required to take a furlough. State employees in California and Wisconsin have had to take furloughs in recent years. Workers in some states are eligible for unemployment benefits if they are furloughed for more than seven days. Even though most workers on furlough go back to their jobs at the end of that time off, banks would tend to shy away from allowing someone to close if they are collecting unemployment while on furlough. A furlough can be lengthy, and in some cases permanent. Mortgage lenders would rather see you collecting a paycheck.
Lenders will typically want to see that the borrower has been working for his current employer for at least two years. They may want to see an even longer employment record if the worker has switched to a new occupation. Employment and income stability are key components of the mortgage underwriting process. The bottom line in nearly all cases is you need a job to close on a mortgage. The lender also will usually run a credit check right before closing -- maybe even the day of the closing. Loan officers will slam the brakes on the whole closing process if they detect any hint that you will have trouble repaying the loan.
Unemployment compensation is not permanent income, only a short-term source of funds to help keep you afloat until you get another job. Mortgage lenders want to have a reasonable assurance that you will have the money to repay the bank over the next 15 to 30 years, depending on the length of your mortgage. There is no guarantee you will have a job with sufficient income when the unemployment checks run out.
You may be able to close on a mortgage while on unemployment in some circumstances. You may have a spouse who earns enough to pay the mortgage. You may have enough residual income from other sources that can cover the mortgage payment. A large net worth also might make a difference. If you have a substantial amount of liquid assets, the bank may allow you to close on a mortgage while on unemployment as long as some of your assets are held in reserve as a guarantee for the mortgage payments. Good luck trying any of these routes. The bank is still likely to advise you to come back after you get a job.
Tim Grant has been a journalist since 1989 and has worked for several daily newspapers, including the Charleston "Post & Courier," the "Savannah News-Press," the "Spartanburg Herald-Journal," the "St. Petersburg Times" and the "Pittsburgh Post-Gazette." He has covered a variety of subjects and beats, including crime, government, education, religion and business. He graduated from The Citadel with a Bachelor of Science in business administration.