The don’ts of the home loan process
Thoughts to share with you my friend Alicia Zhao sent to me today. What she sent me was an important list of what “not to do” during the process of applying for a home loan. Not following these rules could jeopardize your transaction. Here’s the article sent to me by my friend Alicia Zhao. Knowing Alicia for over 10 years. I trust her to get the job done for you. Her article was enjoyable so I had to copy it and pass it along to all of you.
What Alicia Zhao has to say
Last week one of my clients almost ruined his new home purchase at the last minute. After signing his final loan papers, he wrote himself a couple of checks totally over $40K from credit cards. Not knowing what he was doing he then deposited them into his bank account at the same time he was purchasing a cashier’s check for his closing costs. He thought it was a “done deal” and the loan was automatic ally his. My client didn’t realize that the lender would check the source his closing funds at the last minute before funding the loan. Be warned they do!
Several years ago another client was buying a new home. After signing his final loan papers, he quit his job. As a result, he lost the house. He thought it was a “done deal” after he signed closing papers in escrow. He didn’t realize that the lender would call his company two days later to make sure he was still employed before they funded his loan. YES, they do that too!
16 NO-NO’S thoughts to share
I have listed below 16 definite NO-NOs, each I’ve encountered during my 16 years in the mortgage loan business.
Not all of these are necessarily fatal flaws, as there are often work-around that can correct the problem. At best, they’re speed bumps that will delay your escrow closing and cause extra work for you. And it’s not an all-inclusive list, as there’re daily discovery of new deal-killers.
1. DON’T borrow money from credit cards. It will be considered as liability and add to your debt ratio. This extra liability could lower your credit score to a point to disqualify you for your loan.
2. DON’T quit your job! Even after you sign your final papers. If the lender used your income to qualify you for the loan, you must maintain your employment at the time the loan is funded. They’ll call your employer just before funding to make sure you still have a job!
3. DON’T switch jobs! Even if the new job pays the same or more than your previous job. If you do it adds complexity to your closing, meaning more paperwork aka loss of time and money. Many lenders guidelines state they’ll not fund a loan until they can verify you’ve been on the new job for 30 days. Breaking this guideline will delay your escrow from closing on time. And possibly causing you to lose your preferential rate.
Keep your job and salary intact
4. DON’T change your pay structure! If, for example, you cut back your hours, or take a lower base salary. Even if it’s in exchange for the opportunity to make higher commissions or bonuses. The lender will only consider your new lower on your current base salary. A specific point to remember is if you switch from employee to independent contractor (even if you do the same work at higher pay), you no longer have ANY salary. As far as the lender is concerned salary is no long a qualification asset. Contractors are considered as self-employed and are required to have two year tax return income.
How about “BIG” ticket items?
5. DON’T go shopping for a new car! Car dealers like to run your credit report, which could cause your credit score to drop. Even though the lender will already have your credit report in their file, they’ll usually refresh the report just before funding. Credit scores that drop below their threshold, then you won’t get the loan. Buying a car, the lender will re-underwrite your file to see if you still qualify with the new debt. Even if you buy a car with cash, they’ll want to make sure you still have enough cash to close your loan transaction. Again, a loss of time and money.
6. DON’T shop for or buy new appliances, furniture or other high-ticket items such as a new engagement ring before you close your transaction.
7. DON’T forget to pay your bills on time! Recent late payments can have a BIG impact on your credit score. They may even turn your loan down if the credit score goes too low..
8. DON’T assume your auto pay takes care of paying your bills automatically. Double check your bank account to make sure the bills are paid. A recent late on your mortgage payment could kill your ability to buy or refinance a home. And it does happen!
Don’t drive your loan officer crazy!
9. DON’T move money around in your accounts! The simple act of transferring money from a checking to a savings account, or from brokerage to checking, will trigger the necessity to explain the transfers and provide a paper trail.
10. DON’T make large non-payroll deposits into your account! Because of new money-laundering laws, lenders will require a full explanation and paper-trail for any “large” deposits. What’s “large”? It’s up to the lender, but many consider anything more than 25% of your monthly income large enough to require explanation.
11. DON’T mail your tax return! If you’re buying or refinancing near the tax filing deadline (such as now), you should e-file your returns. The lender must obtain tax transcripts from the IRS before funding, and snail-mailing the return can add several weeks to the process.
12. DON’T start another mortgage transaction! An inquiry will appear on your credit report and you will be asked to explain it. If you are applying for a home equity line, or buying a rental property, the lender will demand all the details of the new property. This includes the principal, interest, taxes, insurance, market rents, etc. to determine if you still qualify. They may even insist you close the other transaction before they’ll fund your loan. If you’re making multiple applications on the same property, they’ll stop processing your loan until you cancel the other application. Find a lender you like and stick with them to the end. Don’t play the “smart investor” game and shop your loan until it is funded. No one like to be played…period.
Should I sign any contracts?
13. DON’T list your home for sale if you’re trying to refinance!
14. DON’T extend your credit cards by more than 10% of your limits. Traditionally, if your credit scores are border line problems for underwriting guideline occur. This will hurt your credit score, which could disqualify you or slightly increase your mortgage rate.
15. DON’T start a big remodeling project! When refinancing, lenders won’t give you a loan until your project is finished. Because they’re afraid of mechanics liens. At least wait until the appraiser sees your home before swinging any sledgehammers!
16. DON’T leave town during your transaction, whether for vacation or for business, without informing your loan officer. This is a time for you to be there and available to make decisions and provide instant information when required.
P.S. Who’s the next person you know who would like to have a smooth purchase or refinance transaction. Be sure to give me a call to discuss how I can help them.
Who are you going to call?
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