This Article Is About Avoiding Mistakes Prior To Clear To Close To Avoid By Mortgage Borrowers
There Are Mistakes Prior To Clear To Close To Avoid By Mortgage Borrowers in order to get the CTC on time and close on time. The clear to close can get delays or the borrower can no longer qualify if they make certain mistakes. The clear to close is when the mortgage underwriter issues its blessing and gives the thumbs up for the lender to fund the loan. The CTC is only issued after the lender does a final soft pull credit check, verification of employment, and verification of assets. The borrower should realize the lender can always revoke its loan commitment until the day of the closing. In this article, we will discuss and cover the mistakes prior to clear to close to avoid by borrowers.
Borrowers are planning on applying for a residential mortgage loan or are currently in the process of the mortgage approval process, there are certain mistakes prior to clear to close they need to avoid in doing or CTC will get revoked.
List Of Things To Avoid Prior To A CTC
Whenever I take on a new mortgage loan borrower, I preach to them the following:
- Do not quit the current job or give notice that they will be quitting
Do not apply for new credit:
- buy new furniture
- charge up credit cards
Never be late on any monthly credit obligations or bounce any checks:
- Do not purchase a new car or trade-in auto
- Do not close out bank accounts
- Don’t open new bank accounts
- Do not make any irregular deposits or make large withdrawals
The above are common Mistakes Prior To Clear To Close borrowers often make.
Consequences Of Quitting Job Prior To Clear To Close
Many borrowers think just because the lender got verification of employment that they are home-free and that their employment status has cleared. These are very common Mistakes Prior To Clear To Close. Unfortunately, there are those who quit their jobs after the verification of employment or change jobs. Mortgage lenders will do a final verbal verification of employment just prior to issuing a clear to close This is to verify borrower is still employed. If borrowers quit the job and did not get a new job, approval will be revoked.
Changing Jobs During Mortgage Process
If borrowers changed jobs, the whole file needs to be re-underwritten to make sure that the income qualifies and that the new employment will continue for the next three years. The mortgage underwriter will need written verification of employment from the current employer and will need a minimum of 30 days’ paycheck stubs from the new employer. Any overtime income or bonus income used from the previous employer will be null and void. Changing jobs during the mortgage approval process will cause at least a 30 to 45-day delay in closing the real estate transaction. Quitting a job during the mortgage approval can revoke mortgage approval. Borrowers should avoid quitting a job or changing jobs during the loan process.
Applying For New Credit Prior To Clear To Close
The home buying process is an exciting time for first-time home buyers and seasoned home buyers. Homebuyers cannot wait to decorate their new home with new furniture, fixtures, and appliances. Borrowers with higher debt to income ratios and barely qualified for a home loan should avoid all costs using credit cards or applying for new credit. There are many appliance stores and furniture stores that will give credit and offer no payments for one year or more if consumers purchase their product. Lenders will do a final soft pull of credit just prior to issuing a clear to close to see that they did not max out credit cards. Or have new credit with balances on them. Debt to income ratios can exceed the maximum allowed per automated approval. If borrowers exceed the debt to income ratios because they have new credit card purchases and/or applied for new credit, they need to pay those off. Or the underwriter might require to close out credit card accounts.
Credit Supplement During Mortgage Process
Borrowers forced to pay off credit card accounts and/or close credit card accounts, proof must be provided to the mortgage processor. The processor needs to do a credit supplement.
- A credit supplement is notifying a third party credit service agency
- Provide the third party agency with proof that the credit card accounts have been paid off and/or closed
The third-party credit service agency then notifies all three major credit bureaus:
- Transunion
- Experian
- Equifax
Requests the three credit bureaus to update consumer credit information:
- This process is called a rapid rescore
- Costs $100.00 per credit tradelines
- Can be costly
- Besides the costs, it will delay mortgage closing for a week if not longer
- The lender will also want to verify the funds used to pay off the credit cards and might require bank statements to source those funds used to pay off the credit card accounts
Never charge up credit cards or apply for new credit during the mortgage approval process.
Never Be Late On Credit Obligations Prior To Clear To Close
As mentioned above, your lender will do a soft credit pull prior to issuing a clear to close. Do not have to worry about if credit scores drop because initial credit scores when first applied will be used for the duration of the mortgage approval process. However, lenders want to see whether borrowers have incurred any more date from the application date. Also, lenders want to know if borrowers have been timely on the current debts. One late payment on the credit report will be a deal-breaker. I can often revoke mortgage approval. Lenders will most likely request an updated bank statement prior to clear to close. This is to see if there are sufficient funds to close. Lenders prohibit overdrafts. Make sure not to have any overdrafts during the mortgage process. Even a $5.00 dollar overdraft can be a major issue prior to a clear to close.
Do Not Purchase A New Car Prior To A Clear To Close
Having a car payment is one of the most negative factors that a mortgage borrower can have. A car payment greatly negatively impacts the borrower’s debt to income ratios. An average new car payment is around $400.00 per month. A $400.00 per month payment is equivalent to a $100,000 mortgage payment. For those borrowers who have a $400.00 per month payment, it will reduce $100,000 worth of buying power on a home purchase. If planning to buy a car during the mortgage process and prior to a clear to close. DON’T!!! A car payment will negatively impact debt to income ratios. Can revoke your mortgage loan approval. Most new car payments have 3 to 5-year payment terms. That is the reason why car payments are high. Consumers are given 3 to 5 years to pay a $30,000 dollar car loan balance.
Trading Car During Mortgage Process Are Mistakes Prior To Clear To Close
Mistakes Prior To Clear To Close is trading in autos. Those who currently have a car payment and are thinking of trading a car then can do so if they have to only if the new car payment is lower or the same as the current monthly car payment.
The following is one of the most common Mistakes Prior To Clear To Close:
- They can get a larger car loan and extend the payment terms but the monthly payment cannot exceed the current car payment for borrowers with higher DTI
- For debt to income calculations, the monthly payments are used and not how much they owe
- To calculate debt to income ratios, lenders take the sum of all of the monthly minimum debt payments and divide it by gross monthly income
- Do Not Close Out, Open, Or Transfer Funds From One Bank Account To Another
How Underwriters Analyze Bank Statements
The bank account will be carefully analyzed and reviewed by the mortgage underwriter.
- Any deposits over $200.00 will need to be sourced
- Any irregular deposits or bank wires will need to be sourced
- By source, it means that proof of the deposits needs to be verified
- If a person sold a car and make a $3,000 deposit to a bank account, the $3,000 dollars needs to be sourced
- The mortgage underwriter will require a copy of the check, copy of the bill of sale, copy of the title, and copy of the deposit slip
- Borrowers transferring funds from savings account to a checking account, the underwriter will need to see the money trail and need to provide the funds leaving the savings account into a checking account
All gift funds need to be sourced and a gift letter needs to be signed by the donor stating that the funds given to the recipient will not be paid back and it is a gift.
Gift Funds Mortgage Guidelines
On FHA loans, the lender will also require 30 days of bank statements from the donor on gifted funds. This is proving that the gift funds have been seasoned for 30 days. Will want to see bank statements showing the funds leaving the donor’s bank account and will want to see the deposit of the recipient’s bank accounts. On Conventional loans, the borrower just needs to provide a copy of the canceled check of the gift money. The donor’s bank account does not need to be provided as long as a copy of the canceled check is provided.
Things That Need To Be Avoided During The Mortgage Process
Borrowers who do not want to go through a paperwork nightmare, do not do the following:
- close out current bank accounts
- do not open new bank accounts
- do not make irregular deposits
- do not transfer funds back and forth from one account to another account
- document every deposit and withdrawal during the mortgage approval process and prior to a clear to close
Home Buyers who need to qualify for a mortgage with a direct lender with no overlays on government and conventional loans can contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.
