When you apply for a mortgage loan, avoiding the obstacles below will help minimize any delays during the mortgage process and lead to a smoother, quicker closing (also, forewarned is forearmed).
1. Don’t change your job, quit, or become self-employed before you apply for or during the processing of your mortgage. Job security and consistency are key factors in the approval process. If you change your job, you may need 30 days on the new job to count the income, and if you switch to self-employment (your own company or you work on commission) you need 2 years of self-employment to use that income to qualify. In addition, lenders will verify income by calling the current employer, asking for a CPA letter, and, in addition, pull a transcript of the tax returns filed using a 4506T. It is important to make sure that the tax returns supplied are the actual tax returns filed. Often, copies of tax returns are supplied, and amendments are made in between, and the numbers on the 4506 transcript do not agree with the furnished tax return.
2. Don’t create a paper trail nightmare. Avoid last-minute bank account changes and transfers. Today, the trail of all large deposits into a savings account must be verified to ensure that additional debt has not been taken out. If you are receiving a gift, bonus, repayment of a loan, or you are transferring funds, they must be documented so it is best at the outset to keep this in mind and do it or avoid it from the start (or call me to structure properly).
3. Don’t innocently run up debt during the process. Avoid buying or leasing a new car, or getting new appliances or furniture on credit. Once you are qualified on your income, you do not want any surprises to surface that can affect your mortgage commitment. The additional debt can hurt your credit score, affect your rate, and more importantly jeopardize your loan approval as an increase in debt may affect your debt ratio ceilings allowed by the lender. (The maximum debt the lender will allow calculated by debt/income).
4. Don’t have multiple credit reports pulled by different companies. This may lower your credit score and any inquiries must be explained to make sure no additional credit was taken in between the initial application and the closing. In addition, credit is repulled before a closing so it’s important to keep credit card charges below 50% of the maximum credit line extended and not to run up credit bills. Needless to say, do not pay late on bills especially during the processing of your loan. Drops in your credit score may cost you thousands of dollars, so please heed my advice.
5. Don’t co-sign on a loan for it becomes –your loan and shows up on your credit report as such. The debt may also affect your ability to obtain the mortgage loan you are trying to qualify for. If you have co-signed, some lenders may accept proof that the co-borrower pays the debt if you provide 12 months cancelled checks.
6. Don’t leave out liabilities that might not appear on your credit report. Aside from misrepresenting your actual financial situation (which may be construed as fraud), lenders will perform background checks and verifications and those left-off liabilities may surface, slow the process down, and jeopardize the mortgage commitment.
7. Don’t spend your savings before you close. You need more than a down payment to get to the closing table. You will have tax and insurance escrows as well as closing costs so I would suggest calling a mortgage professional to get a strong estimate of exactly how much cash you should have on hand in order to complete the deal. You can also see what alternative and creative options you have in the event you are short on the cash needed to complete the deal such as:
A. Seller concession
B. Lender credit for closing costs
C. A lower down payment program which may incur private mortgage insurance
D. A lower down payment program with lender paid mortgage insurance
E. Family gifts
8. Don’t not call me when you need sound mortgage advice and counseling and assistance in obtaining your mortgage. Great rates are important, but it’s our advice that will save you thousands.
by Carl E. Guzman