How a Job Change, a Baby, or a Wedding Can Tank Your Mortgage Application

As John Lennon sang, “life is what happens to you while you’re busy making other plans.” It’s a beautiful sentiment, but it’s also a bit of a warning. Prospective homebuyers, in particular, might want to take heed. 

When you’re preparing to buy a home and apply for a mortgage to help pay for it, no doubt your life will continue apace—you’ll go to work, tend to your family, and deal with all the ups and downs of everyday living. Yet sometimes, those life changes can affect your mortgage application and lay waste to all those plans you were making. 

What happens if you need to deal with a sudden life change that drains your savings, changes your financial outlook, or throws your debt-to-income ratio out of whack? You’ll have to revisit things with your lender, and perhaps take a step back to see if what you were looking for in a home still applies today. 

How funding a home purchase works

If you’re new to the homebuying process, let this be a quick reminder that applying for a home loan isn’t as simple as asking for what you need and walking out of the bank or loan office with a check. 

Lenders can pre-approve you for a loan by reviewing your income, credit, assets, and debt based on what documentation you provide. Once you’re under contract on a home, your loan application is reviewed by the lender’s underwriting team, which fully verifies all of your financials. 

Then, most lenders will reverify your employment and other important details just before you close on the home, which is when the funding is disbursed. If anything has changed in the time since you submitted your application, the lender will find out. 

“The very last moment something can go wrong is typically right before funding—if there’s a new debt, a job change, unexplained large deposit, or drop in credit score, the math may not add up anymore,” says Jake Vehige, president of mortgage lending at Neighbors Bank.

How do life events get in the way of your application?

A lot can happen in even a short time period, like the window between underwriting and closing, especially if your house hunt takes longer than expected.  

“The biggest disruptors in the process aren’t dramatic. They are everyday life and financial decisions,” says Vehige.

“We see things like job changes, especially those that bring about a big shift in how a borrower is paid, financing of a car or furniture, new credit cards and large deposits that aren’t documented, all create hiccups. Relationship changes, sudden medical leave, or gaps in employment can also trigger delays or reevaluation.”

Some of these changes, whether it’s breaking up with your partner or getting a new job, might already give you pause about moving ahead on a home purchase. But in case it didn’t, know that your lender will be keenly interested in anything that changes your borrower profile. 

Big life pivots, such as having a baby or getting married, won’t hurt your application in and of itself. It’s the ripple effect financial decisions you make after that which can be an issue. 

For example, if you decide to throw a big wedding, you should know that the average cost of a wedding is $36,000—and in fact, 59% of couples told Zola they are delaying buying a home to pay for their wedding. If you have a baby, the average parent spends 20% of their annual income on child care. And if you get hurt and need medical leave from your job, short-term disability may only help you recoup 60%-70% of your income. 

So if you can time any big changes—such as getting a new job—for after closing, do. If not, be prepared to show your lender why it won't affect your ability to make payments.

“When a client tells me they are about to switch jobs, that presents a serious challenge,” says Walt Bianchi, the owner of Bright Vision Mortgage in Florida. "If at all possible, I advise them to wait for this change until after closing, assuming the new job pays at least the same as the old job. If this is not possible, we ask for an offer letter, a letter of explanation and the first pay stub at the new job. If everything checks out, the loan continues to closing.”

What you don’t know can hurt you

This can be hard to fathom, but even making seemingly prudent financial decisions can impact your mortgage application. Your debt-to-income ratio is a delicate balance, and making changes to it, even ones that feel beneficial to your financial picture, can disrupt things. 

“Some people think that closing a credit card will help since they now have access to less debt and the bank's loan is now more secure,” says Bianchi. “In fact, closing an existing account can hurt, as you lose all the good payment behavior on that account and your score may actually decline.” 

In most cases, a home purchase—and thus the home loan—are worth hundreds of thousands of dollars if not more. Surely, a few hundred dollars spent elsewhere won’t make a dent in your case to take out a big loan? Unfortunately, it can.

“A car purchase is still one of the most common surprises,” says Vehige. “Even a few hundred dollars in new monthly debt can shift your debt-to-income ratio enough to require re-underwriting your file,” says Vehige. 

This is why Vehige advises that “once you’re under contract, treat your financial life like it’s in a holding pattern, whenever possible.” 

Stay the course or start over?

A tanked mortgage application can be a real blow, especially if the life change you're experiencing wasn't planned. But it doesn't always mean starting from scratch.

"We never want to walk away from helping someone accomplish their dream of homeownership when there is a path forward—even if it can be hard to see," says Vehige. "We see delays and unexpected turns happen regularly, and it's our job to work together through them if we can see the keys in your future."

But there's a harder question worth asking, too: Is this still the right time? A new baby, job transition, or wedding—any of these might change not just your mortgage math but what you actually want out of a home and when you want it.

That's OK.

"Buying a home should increase your stability. If it jeopardizes it, it's worth pausing. Another house will come," says Vehige.