My partner got laid off the week we were closing on our first home. Should we pause or renegotiate the deal?

Now, Samantha and James are in a difficult position. Can they go through with the loan without informing the mortgage lender, and can they rework the plans that they already had in place to afford the mortgage?

Can you go through with the purchase of a home after a layoff?

The first big question when you've been faced with a layoff while you're buying a home is whether or not you can go through with the purchase.

Generally, you have to report any changes to your employment and income to your loan officer right away if they happen before closing.

So, although James got laid off after his employment was verified, the couple needs to alert their loan officer to the layoff anyway. Otherwise, they could be found guilty of mortgage fraud. If the bank finds out, they could rescind the loan and require it to be repaid right away.

If one partner is laid off and the other isn't, as in the case of Samantha and James, then the lender will look at whether you can still afford the home on just one income.

Depending on your lender's rules, you'll likely need to keep your debt-to-income ratio below somewhere between 36% and 45% (1) including the monthly housing payment and all your other debt.

If you can't do that, then you may not be able to close on your loan since your lender will no longer consider you a good credit risk. You may try to rework your agreement with the seller and see if they'll wait to close until your partner gets a new job. However, there are some obstacles to this:

• It may take a long time to find a new job
• Your mortgage rate may expire, and you will have to begin the approval process again
• You may have to wait extra until the lender counts your partner's income from their new job, since lenders like proof of stable employment

Unfortunately, if the lender says you can't afford the loan and the seller won't work with you, you may have to walk away. If this happens the week of closing, then you will probably lose your deposit, which is unfortunate. However, this compensates the seller for having lost time with the home off the market.

If you have the money, you could also decide to make a larger down payment to reduce the amount you are borrowing, and thus reduce the debt payments. If this brings your debt-to-income ratio down to an allowable level, then you won't have to abandon the purchase.

Should you go through with the home purchase?

If Samantha and James find they can be approved for the home purchase, they still have to decide if they can really budget for it.

Let's say the couple was going to buy a $600,000 home with a 10% down payment, so they'd be borrowing around $540,000. They're looking at getting a 30-year loan at 6.547% APR, and their monthly cost would be $4,305.06, including $636.19 per month in property taxes, $200 per month in homeowner's insurance and $144 per month in private mortgage insurance.

Samantha is earning $170,000 per year, or $14,166 per month. After state and federal taxes, she brings home around $9,600 per month. James was earning $90,000, but sadly, with his job loss, that income will disappear for now.

Samantha and James also have around $100,000 saved above and beyond what they were going to put down on the home and pay in closing costs, as they have a large emergency fund, and Samantha recently got a bonus at work.

If Samantha and James went through with the deal, they'd have $4,305.06 in monthly mortgage payments. Since DTI is calculated based on pre-tax income, if the couple has no other debt, their debt-to-income ratio would be $4,305.06/$14,166 or around 30% per month. That's below the limit.