Mistakes Prior To Clear To Close To Avoid By Mortgage Borrowers

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Mistakes Prior To Clear To Close To Avoid By Mortgage Borrowers

This BLOG On Avoiding Mistakes Prior To Clear To Close To Avoid By Mortgage Borrowers Was UPDATED On February 6th, 2019

what are Mistakes Prior To Clear To Close To Avoid By Mortgage 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.

Whenever I take on a new mortgage loan borrower, I preach to them the following:

  • Do not quit 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 ot 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

what are Consequences Of Quitting Job Prior To Clear To Close

Many borrowers think just because the lender got a verification of employment that they are home free and that their employment status has cleared. This is 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 job and did not get a new job, approval will be revoked

Changing Jobs During Mortgage Process

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 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  job during the mortgage approval can revoke mortgage approval
  • Borrowers should avoid quitting job or changing job during loan process

Applying For New Credit Prior To Clear To Close

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
  • Borrowers with higher debt to income ratios and barely qualified for home loan should avoid at all costs in 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 maxed 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

what is Credit Supplement During Mortgage Process

Borrowers forced to pay off credit card accounts and/or close out 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 has 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

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 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 prohibits overdrafts
  • Make sure not 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

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 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 borrowers who have a $400.00 per month payment, it will reduce $100,000 worth of buying power on a home purchase
  • If planning buying 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 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

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 car, then can do so if they have to only if the new car payment is lower or the same as current monthly car payment.This 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 monthly payment cannot exceed 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 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

How Underwriters Analyze Bank Statements

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 sourced, it means that proof of the deposits needs to be verified
  • If a person sold a car and make a $3,000 deposit to 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
  • Borrowers transferring funds from a 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 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 recipient will not be paid back and it is a gift

Gift Funds Mortgage Guidelines

What are Gift Funds Mortgage Guidelines

The lender will also require 30 days of bank statements from the donor on gifted funds. This is proving that the gift funds has 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 bank accounts.

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 mortgage with a direct lender with no overlays on government and conventional loans can contact us at The Gustan Cho Team at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

Gustan Cho NMLS ID 873293

www.gustancho.com

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