The Mortgage Approval Process
Once you make a decision of purchasing a new home, you need to thoroughly examine your credit and financial profile very close so there are no hiccups in obtaining a mortgage and make sure that your mortgage loan funds. Mortgage underwriters, the person that will decide whether to approve your loan or not, will thoroughly be examining your credit profile, your credit history, your income, your debts, and your assets and will not give you a mortgage loan approval unless they are fully convinced that you have the ability to repay your mortgage loan and make sure that you can afford your new mortgage loan payments for years to come. Mortgage underwriters will make sure that you have sufficient funds for the down payment, closing costs, reserves, and that you have a job and/or income that is stable for years to come. There are things that you need to avoid during the mortgage approval process if you want your mortgage loan to close and to avoid delays in the mortgage approval process.
Avoid making large purchases
Mortgage loan underwriters will thoroughly review your bank statements for the past 60 days and make sure that your down payment and closing costs have been seasoned for at least sixty days. Mortgage loan underwriters will also review your spending habits and will look at large deposits and large withdrawals. Mortgage underwriters will also pull your credit report throughout the mortgage approval process and will be questioning large purchases that show up on your credit report. For example, if you got pre-approved for a mortgage loan but purchased a car or appliances on credit after you have submitted your mortgage loan application, the new large purchase will be reported on your credit report and the monthly payments on the large purchase will be counted in calculating your debt to income ratios. If you have higher debt to income ratios, any additional monthly payment can affect your debt to income ratios where many folks will not qualify. Large purchases during the mortgage loan approval process can cause a mortgage loan denial due to higher debt to income ratios. Never purchase a new car during the mortgage loan approval process. A $300 new car payment is equivalent to a $70,000 mortgage and will definitely affect your debt to income ratios. Large purchases should be delayed until after you close on your home.
Avoid Making Lifestyle Changes
Avoid making major lifestyle changes such as changing your job, trading your car in, adopting a child, during the mortgage loan approval process. Every action during the mortgage approval process will be need to be explained to the mortgage loan underwriter with a signed and dated letter of explanation and supporting documents. Any large deposits and large withdrawals all need to be explained to the mortgage loan underwriter.
Cash does not exist in the mortgage industry. All paper trail needs to be documented by providing canceled checks, deposit slips, and bank statements. Many folks sell items after they have a home under contract. For example, if you are selling a vehicle and need to use the proceeds towards your down payment, you need to make sure that you get a check from the buyer of the vehicle. Make a copy of the check, get a bill of sale, make copy of the title of the vehicle, and provide the mortgage lender with the deposit slip.
Gift Funds From Family Member
Mortgage lenders allow gift funds from a family member and/or relative. However, gift funds needs to be documented. If you deposit gift funds in cash, that cannot be counted. Gift funds must be deposited in check and/or wire funds. Deposit slip, copy of canceled check, and gift letter needs to be provided as well as 30 days bank statements from the gift donor. Gift letter needs to state that the gift funds is not a loan and will not be paid back.
Do Not Open Or Close Credit Accounts
Never open new credit accounts during the mortgage approval process. By opening new credit accounts, you will get hit with a hard credit inquiry. Every inquiry in the past 120 days needs a letter of explanation written by you. Every hard credit inquiry will also drop your credit scores. Each hard credit inquiry can drop your credit scores by 2 to 5 FICO points or more.
You can have bad credit and get a home loan with bad credit. You can have open collections and get approved for a mortgage loan without having to satisfy or pay off the old collection balance. You can have a bankruptcy and foreclosure and qualify for a mortgage loan as long as you have passed the mandatory 2 and/or 3 year waiting period after bankruptcy and foreclosure. You can have charge offs and still qualify for a mortgage. However, you CANNOT HAVE HAD ANY LATE PAYMENTS IN THE PAST 12 MONTHS AND QUALIFY FOR A MORTGAGE.
Mortgage lenders do understand that consumers can go through a tough time during certain periods of their lives. However, mortgage lenders want consumers to have re-established credit and want to see a timely payment history in the past 12 months. One late payment in the past 12 months may be doable, however, multiple late payments in the past 12 months will definitely be a deal killer. Make sure that you pay every monthly bills on time and do not get any late payments during the mortgage approval process.
Mortgage lenders do not want to see any overdrafts from mortgage loan applicants in the past 12 months. Any bank overdrafts in the past 12 months can be a deal killer for mortgage loan applicants. Mortgage lenders will consistently ask you for update bank statements during the mortgage approval process and mortgage loan underwriters will carefully be reviewing you bank statements for any overdrafts.