Ten Things to NOT do During the Home Buying/Mortgage Process
Congratulations!! In this crazy market you have gotten an accepted offer on the home of your dreams. You have been pre- approved for a mortgage, all the home inspections are complete and you are now in the waiting process until closing. Smooth sailing until the closing, right?? Well…not so fast! All too often during the waiting process home buyers who are financing their transaction may inadvertently make some innocent mistakes that can blow up the whole transaction and cause problems with the lending process.
Here are the “Ten Commandments” of the mortgage process.
1. Don’t co-sign a loan with anyone – You may think that lending your name to your Aunt Edna’s new car loan is not a big deal because you are not going to be paying for it, but it will still be added to your debt. Signing any credit document means that you will guarantee that payment and it will be considered your debt.
2. Don’t open or apply for a new credit card or have any credit inquiries – The waiting process is tough. You are so excited about your new place and spend lots of time planning. You have decided to buy all new furniture for that second bedroom. The nice lady at the furniture store encourages you to save 10% buy opening a store credit. DON’T DO IT. Any changes to your credit profile will cause delays and, in some cases, could change your approval status. It is always best to wait until after closing.
3. Don’t change bank accounts - While setting up things for the move to your new community you decide to open a new bank account at the local bank down the street. Again, DON’T DO IT. While this seems like such a small thing, and it won’t affect your credit profile, it can foul up the process. Loan underwriters will want to see a history of your money flow. A new account will interrupt this process, new banking statements may not be available right away or in the time needed for the underwriting approval. Once again, it is best to wait until you have closed on your mortgage before making a change.
4. Don’t make large deposits to your accounts without talking to your lender – As noted in #3, the underwriters will be checking the history of your money flow. There are very specific rules that must be followed in the approval process. If there is a larger than normal deposit it may look like proceeds from a loan and will be questioned. It is best to speak with your lender to determine the best way to proceed.
5. Don’t change jobs or become self-employed – You or your spouse have been working in a certain industry and have just been given the opportunity to move to a better position with more pay but at a different company. Or even better, you landed the account that could start you off in your own business. This is a big No No. It may seem like a good idea because you will be making more money and therefore be a better borrower, but it’s not. Lenders are more interested in stability and history. Lender’s will do employment verification at the early stages. They will check during the application process, then again on the day of closing and more commonly days after the closing has occurred. It is best to keep things as they are until after you are well past closing and certainly don’t make changes without talking to your lender.
6. Don’t fall behind in payments – You are thinking that you will be getting a new mortgage and your current mortgage will be paid off when your current home sale closes so why bother paying this month’s mortgage now? You want to hold on to your cash and think about skipping this month’s credit card payment or pay it later than usual. DON’T DO IT. It is crucial that you keep up on all your payments. Just because you have been preapproved and your credit was good does not mean that you are in the clear. Your payments must continue to be made on time. Your payment history will be checked throughout the loan process.
7. Don’t spend money set aside for closing – This may seem like a silly reminder, but all too often borrowers may use the money set aside for closing with full intention of replacing prior to the closing date and then something happens, and they no longer have the funds. If you spend the money and think you can just borrow that amount from Aunt Edna, think again. There are very specific rules regarding where money to close can come from. It is best to leave the closing money alone and limit chances of anything going wrong.
8. Don’t buy a car – During the loan process don’t buy a car or van or else you may be living in it. That may seem a bit harsh, but the addition of new debit could change your debt ratio enough to disqualify your approval. Best to wait until after closing to shop for a new vehicle.
9. Don’t charge furniture or large amounts on credit cards – Commandment number 2 said not to open a new credit card, but what about existing credit cards? Just like buying a car, purchasing furniture or new appliances or any large purchase with credit can hurt the process. Remember the lender’s not only check employment at closing they also check credit scores and liabilities up until closing day. Any changes, no matter how inconsequential it may seem to you, could be a bid deal.
10. Don’t omit liabilities from your loan application – One of the main things to remember—aside from not making any changes – is that your loan officer is your advocate. The loan officer needs to know everything, good and bad, about your financial situation. You may think that some things don’t matter or that it may not come up, but it does. Your loan officer is trying to figure out the best way to get the deal done and needs to know everything.
Just remember, the loan process is very structured and detailed. Don’t be dissuaded by this as your home buying team of Realtors, Lenders and Title professionals are here to help you navigate the process.