In this article, we will cover things to avoid during mortgage process for homebuyers. The mortgage process can be very stressful but does not need to be. Due to the many rules and regulations by mortgage regulators, borrowers often do not understand and will never understand the strict rule on disclosures, re-disclosures, and documents. Many documents being requested may seem very petty. However, just because borrowers are pre-approved for a mortgage loan does not guarantee a closing.
There are things to avoid during the mortgage process to avoid delays in mortgage closing or ruining pre-approval altogether. By watching out for things to avoid during mortgage process, borrowers will avoid potential closing delays and avoid opening up another can of worms where more and more paperwork is requested. In the following paragraphs, we will discuss and cover things to avoid during mortgage process for homebuyers.
Things To Avoid During Mortgage Process Depositing and Withdrawing Large Amounts of Money
All large and irregular bank deposits in the past 60 days need to be sourced for the down payment and closing costs for a home purchase. Unsourced large bank deposits and withdrawals will jeopardize mortgage approval or delay loan closing. Cash does not count in the mortgage industry. Any cash deposits cannot be used.
All larger bank deposits in the past 60 days of cash, checks, and electronic wire transfers will be reviewed by mortgage underwriters. A letter of explanation will be required. Borrowers can provide documented proof that the bank deposit is not a loan but own funds. If from a sale of a large ticket item, then the borrower will be in good shape. They can use the deposit. Smaller irregular deposits of $200 or less will not be normally questioned.
How Mortgage Underwriters Analyze Large Deposits
Here are what mortgage underwriters will ask for large and irregular deposits from mortgage loan borrowers:
- copy of the canceled check
- letter from someone who gave the money
- reason for them giving money
- whether it was a sale of merchandise or whether it was a gift
- Copy of a bill of sale, title, and canceled check if borrowers sold a larger ticket item such as a vehicle, boat, motorcycle, recreational vehicle
Mortgage Loan Application Process
The first step in qualifying for a mortgage loan is to talk with your loan officer. Your mortgage loan originator will ask you questions about your credit, income, and the type of home you want to purchase. Once your mortgage loan originator feels you qualify, the loan officer will email you a link to an online mortgage loan application. Mortgage loan applicants need to be honest and upfront with their loan officers. Hiding things with your loan officer can cause major delays. Even kill the mortgage loan.
The loan officer is on your side and will do everything possible to help borrowers to close their home loans. Remember that loan officers are on commission. They are not paid a penny until they close on the home loan. Public records that are not on your credit report will be discovered. Therefore, it is wise to disclose any public records such as judgments, bankruptcy, foreclosure, child support, or short sale not on your credit report.
Co-Signing Are Things To Avoid During Mortgage Process
It is rather difficult to say no to a family member who asks you to co-sign for them on another loan. However, co-signing on another loan is one of the most important things to avoid during mortgage process. Co-Signing on another loan will put yourself and your credit at risk. It will affect buying power on a home purchase. This is because it affects borrowers’ debt-to-income ratios.
If the person who the borrower co-signed for is late on their monthly payments, it will affect the borrower’s credit negatively. It will drop their credit scores. If the main borrowers default on their loans, the co-signer will be responsible for the loan.
Do Not Apply For New Credit During Mortgage Process
Applying for new credit is one of the things to avoid during mortgage process. There are two issues with applying for new credit. Any new credit obligations will affect your debt-to-income ratios and anytime you apply for new credit. It is considered a hard credit pull. Each hard credit pull will drop credit scores by at least 2 to 5 FICO points. Plus, with every credit inquiry, borrowers will need to write a letter of explanation to the underwriter as to why they applied for new credit.
When shopping for a mortgage, try to avoid running credit multiple times. Talk to the lender first. See whether borrowers qualify with that particular lender and if they should decide to go with that lender. If the lender has no overlays, give them the green light to run credit. Don’t just have any loan officer run credit first and ask questions after they run the credit. Remember, avoid having too many credit inquiries during the mortgage application and approval process.
Changing Jobs Are Things To Avoid During Mortgage Process
Changing jobs is one of the things to avoid during mortgage process. At best, changing jobs during the mortgage process will delay mortgage closing. Depending on the type of job, it can disqualify borrowers from qualifying for a mortgage loan altogether. For example, if borrowers went from a W-2 wage earner job to a 1099 new job, this will disqualify the borrower from a mortgage loan for at least two years.
Starting a new 1099 wage earner job requires a minimum of a two-year history. Going from one W-2 wage earner job and quitting that job and getting a comparable W-2 wage earner new job, borrowers need 30 days’ paycheck stubs from a new job. 30 days paycheck stubs are required to get a clear to close on the mortgage loan.
Making Large Purchases Are Things To Avoid During Mortgage Process
Many new home buyers purchase new cars when they buy a home. However, buying a new car or buying any high-ticket items during the mortgage application and approval process are things to avoid during mortgage process. Most new vehicles cost $30,000 or more, which translates into a $500 monthly car payment. A $500 monthly car payment is equivalent to a $100,000 mortgage. Many homebuyers cannot qualify for the home of their dreams due to their new car payment. A new car should wait until after closing on a home.
Changing Bank Accounts
Lenders want to see longevity in employment and asset accounts. Do not transfer money from one account to another, and open and close bank accounts during the mortgage process. Doing so will make it extremely difficult to go back and track funds. It will most likely be time-consuming. Translates in mortgage loan closing delays. If borrowers need to transfer funds from one account to another, then make sure to have a paper trail to track those funds when the mortgage underwriter requests them.
Make Sure Savings Are Secured
Down payment and closing costs will need to be verified and sourced up to the closing date. Just because the mortgage underwriter has verified the down payment and closing costs earlier in the mortgage process does not mean they will not do it again. Underwriters will ask for updated bank statements up to the closing date. Make sure not to spend or are short of savings to close on the home.
Many home buyers are so excited that they cannot wait to purchase new furniture and place deposits on home improvement items such as a pool, jacuzzi, entertainment centers, or other high-ticket items. It cannot be short a single penny. Any shortages in closing and down payment will become an issue. It is not as simple as asking mom and dad to lend a few bucks short on home closing. Remember, lenders need to see verified and sourced funds for the down payment and closing costs.
June 17, 2019 - 5 min read