Avoid Mortgage Mistakes Prior To Clear To Close
If you are planning on applying for a residential mortgage loan or are currently in the process of the mortgage approval process, there are certain things that you need to avoid in doing or your clear to close will get revoked.
Whenever I take on a new mortgage loan borrower, I preach to them the following:
1. Do not quit your job.
2. Do not apply for new credit, buy new furniture, or charge up your credit cards.
3. Never be late on any monthly credit obligations or bounce any checks.
4. Do not purchase a new car.
5. Do not close out bank accounts or open new bank accounts and do not make any irregular deposits.
Consequences Of Quitting Your Job Prior To Clear To Close
Many mortgage loan borrowers think just because the mortgage lender got a verification of employment that they are home free and that their employment status has cleared. 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 to verify that the mortgage loan borrower is still employed. If you have quit your job and did not get a new job, you mortgage loan approval will be revoked.
Changing Jobs During Mortgage Process
If the mortgage loan borrower 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 a 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 your job during the mortgage approval will revoke your mortgage approval. You should avoid quitting your job or changing your job during the mortgage approval 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. Home buyers cannot wait to decorate their new home with new furniture, fixtures, and appliances. If you have higher debt to income ratios and barely qualified for a residential mortgage loan, you should avoid at all costs in using your credit cards or applying for new credit. There are many appliance stores and furniture stores that will give you credit and offer you no payments for one year or more if you purchase their product. Mortgage lenders will do a final soft pull of your credit just prior to issuing a clear to close and if they see that you have maxed out your credit cards or have new credit with balances on them, your debt to income ratios can exceed the maximum allowed per your automated approval. If you exceed the debt to income ratios because you have made new credit card purchases and/or applied for new credit, you need to pay those off or the mortgage lender might require you to close out your credit card accounts.
Credit Supplement During Mortgage Process
If you are forced to pay off your credit card accounts and/or close out your credit card accounts, proof must be provided to the mortgage loan processor and the mortgage loan processor needs to do a credit supplement. A credit supplement is notifying a third party credit service agency and provide the third party agency with proof that the credit card accounts has been paid off and/or closed. The third party credit service agency then notifies all three major credit bureaus; Transunion, Experian, and Equifax; and requests the three credit bureaus to update your credit information. This process is called a rapid rescore and costs $100.00 per credit tradelines and can be costly. Besides the costs, it will delay your mortgage closing for a week if not longer. The mortgage 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 your credit cards or apply for new credit during the mortgage approval process.
Never Be Late On Your Credit Obligations Prior To Clear To Close
As mentioned above, your mortgage lender will do a soft credit pull prior to issuing a clear to close. You do not have to worry about if your credit scores drop because your intial credit scores when you first applied will be used for the duration of the mortgage approval process. However, mortgage lenders want to see whether you have incurred any more date from the application date and whether you have been timely on the current debts you have. One late payment on your credit report will be a deal breaker and will revoke your mortgage loan approval. The mortgage lender will most likely request an updated bank statement prior to clear to close to see if there are sufficient funds to close. Mortgage lenders prohibits overdrafts. Make sure you do not have any overdrafts during the mortgage approval 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 a mortgage loan 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 of a $100,000 mortgage payment. For those mortgage borrowers who have a $400.00 per month payment, it will reduce $100,000 worth of buying power on a home purchase. If you are planning on buying a car during the mortgage approval process and prior to a clear to close, DON’T!!! A car payment will negatively impact your debt to income ratios and can revoke your mortgage loan approval. Most new car payments have 3 to 5 year payment terms and that is reason why car payments are high. You are given 3 to 5 years to pay a $30,000 dollar car loan balance.
Trading Your Car During Mortgage Process
If you currently have a car payment and are thinking of trading your car, you can do so if you have to only if the new car payment is lower or the same as your current monthly car payment. You can get a larger car loan and extend the payment terms but your monthly payment cannot exceed your current car payment if you are a higher debt to income ratio mortgage loan borrower. For debt to income calculations, the monthly payments are used and not how much you owe. To calculate debt to income ratios, mortgage lenders take the sum of all of your monthly minimum debt payments and divide it by your gross monthly income.
Do Not Close Out, Open, Or Transfer Funds From One Bank Account To Another
Your bank account will be carefully analyzed and reviewed by the mortgage loan underwriter. Any deposits over $200.00 will need to be sourced. Any irregular deposits or bank wires will need to be sourced. By sourced, it means that proof of the deposits needs to be verified. If you sold a car and make a $3,000 deposit to your bank account, the $3,000 dollars needs to be sourced. The mortgage underwriter will require the copy of the check, copy of the bill of sale, copy of title, and copy of the deposit slip. If you are transferring funds from a savings account to a checking account, the mortgage underwriter will need to see the money trail and you need to provide the funds leaving the savings account into your checking account. All gift funds needs to be sourced and a gift letter needs to be signed by the donor stating that the funds given to the recepient will not be paid back and it is a gift.
The mortgage lender will also require 30 days of bank statements from the donor proving that the gift funds has been seasoned for 30 days and will want to see bank statements showing the funds leaving the donor’s bank account and will want to see the deposit of the recepient bank accounts.
If you do not want to go through a paperwork nightmare, do not 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, and document every deposit and withdrawal during the mortgage approval process and prior to a clear to close.
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