First time home buyers are often surprised at what happens AFTER they are per-approved for home loan. In fact, especially recently several of my buyers ruin their chances of getting a home by making simple mistakes once they hear the word “approval” from the mortgage lender.
Be honest with your current challenges and do NOT look for a new or different job!
Although it is not the most important item for getting an approval, job history and length of time at your present employer is vital to getting approved for a mortgage loan. A letter from your immediate employer during the COVID-19 is available especially if furloughed.
If you have been at your current job for more than 2 years, wait until the mortgage loan is closed and you have moved in the home before choosing to switch to another company.
Do NOT purchase a NEW or Newer car!
It is so easy to understand the temptation to buy a vehicle after getting a mortgage pre-approval. Especially if you’ve come into some cash or have chosen to cash in on a 401K. Most people are a bit nervous and are filled with excitement when they learn that a mortgage lender has offered them a chance to buy a home. If their credit and income are good enough to buy a house, no doubts, that car salesman will approve you for a new car loan.
The pre-approval issued by the lender was determined by the current level of debt and income during your current position and the individual who applied for the home loan. Getting a new loan for a car “WILL CHANGE” all of that!
It’s extremely wise to hold off on this purchase until you have CLOSED on your new home!
Do NOT MAKE A LATE PAYMENT on ANY existing Debt’s!
You’re pre-approval is determined by a snapshot of your credit at the point you have inquired about a loan. The track record that you have is documented by the credit report used for an approval. Most lenders will request a new credit report for you approximately one or two days before the loan closing. Any late payment that shows up could be a red flag to the lender and delays the closing date to provide clarity for these actions and potentially may result in turning down the loan.
To be clear, make ALL your payments on time while in the loan process while waiting for the mortgage broker to finalize your loan.
AVOID any Unusually large deposits!
Just as your credit report shows a track record of your payments over time, your financial institutions also have a track record. The mortgage underwriter (you’ll despise this individual) no worries, they’re only doing their job. They will review your checking and savings accounts to see if there are any larger or unusual deposit activity in the months leading up to the purchase. Please AVOID any large deposits that do not coincide with your normal banking habits.
What is considered large? Here are some numbers to illustrate the point.
Suppose you get paid bi-weekly and your spouse gets paid weekly. Your spouse has a net check, let’s say usually around $2,100 to $2,300 every other week while your net income fluctuates between $950.00 and $1,125.00 each week. A deposit of $800 would not raise a red flag to the lender. But, a deposit for $3,000 or better would send up a huge red flag because that is much larger than most of your previous deposits.
Do NOT open a NEW BANK Account!
We previously mentioned that you should not switch jobs or add any new debt. This venue is consistency, and this certainly fits within that venue!
Whether you have used your current bank for 6 months or 6 years, it is best to stick with that bank until the loan closes. To open new account creates suspicion among mortgage lenders. They wonder if you are trying to hide funds in one account or if you have unrecorded debt obligations that are going to be facilitated with the new account.
Do NOT SPEND the Funds Earmarked for the Down Payment at closing!
Buying a home can be exciting but also stressful. Getting the utilities switched to a new address, changing address with the post office and creditors and hiring the movers can all take time and some funds. While you may have saved up a nice nest egg to prepare for the home purchase, now is not the time to spend ALL that money!
The estimate provided to you for the closing is just “AN ESTIMATE!” Things like property taxes, homeowner’s insurance, and other costs can creep up and cost a bit more than anticipated. It is an awful feeling to get a call from your lender notifying you of the closing date and the amount needed for the closing costs are MUCH MORE than your realized and you don’t have the funds for the purchase.
Do NOT offer MORE for the home over the Appraisal
You may find yourself bidding to purchase a home against other interested buyers. This battle of prices may feel a bit like an auction where the prize goes to the highest bidder. However, mortgage underwriters do not view the home in that manner.
A mortgage is limited by the fair market value of the home which is determined by the appraisal. If you place a contract on a home for a price higher than the appraised amount, “you will be asked to pay the extra from your own funds!”
Be prepared and hopefully your Realtor will explain this challenge prior to making a potential offer of this kind. You may find yourself paying hundreds or maybe thousands of dollars above the market price just to close the deal. This can be a super bad way to start your journey as a homeowner unless you are prepared.
Do NOT Close out ANY DEBT ACCOUNT!
It is usually a good idea to pay down debt and close the account, whether it is a credit card, furniture account or local store account. “However, as we mentioned earlier about keeping your debt as is until the mortgage closes, the same applies here!”
Closing out a credit card, for example, can lower your credit score. One factor of a credit score is the ability to quickly borrow money, also called capacity. If you have a credit card with an available spending limit of $1,000 and only a balance of $100, that means you have the capacity to borrow $900 in the event of an emergency.
However, if you pay off that card and close the account, you then lose the capacity. The capacity reduction can hurt your credit score.
The BOTTOM LINE; leave all accounts open for the time being.
Oh, have mercy, NEVER agree to Co-Sign on a NEW LOAN!
We mentioned earlier that new borrowers should avoid any new debt, especially in the form of buying a new car. This is also true for other new debt such as new credit cards, new furniture accounts or an unsecured loan. This is especially true for being a co-signor on a loan. You may have a close friend or family member that desperately needs your help in this manner. They MUST understand you cannot do so at the current time!
If your mortgage lender told you that you were approved for a home loan, do not co-sign on any loan for a friend or relative until you have moved into your new home. Becoming a co-signer makes you 100% responsible for the new loan, regardless of the good intentions of your friend or relative. This one area is a big no-no for potential home buyers. It will certainly affect your Loan to Value!
Do NOT pass on a HOME INSPECTION
The home appraisal will tell you how much the home is worth based on similar homes in the immediate area. A home inspection will uncover any major problems that need to be addressed before you become the new owner.
If you choose to buy a home without an inspection, against most ANY REALTORS guidance, there is no legal avenue for you to pursue if you discover a problem after you move in.
This means that a faulty water heater, cracks in the foundation, mold in the roof or any other potential problem will be your financial responsibility.
During discovery by the Home Inspector most any elements of concern have provisions in the Purchase and Sales Agreement for negotiating repairs by the sellers! Although most homes are deemed to be in good shape and there will not be a big problem to deal with. But it is better to be safe than sorry.
Please do NOT ignore Requests from YOUR LENDER!
This can be easy to miss, think of a lender as a person very similar to you, they are merely trying to do their job. In your loan process, their job is to help you buy a home.
Sometimes a mortgage underwriter will ask for very specific things. It is not uncommon for an underwriter to request documentation supporting a sale of a car, major change in job or explanation for one missed payment from 14 months ago. “THEY WILL dissect your past life no doubts!”
If your lender contacts you and asks for some type of document or explanation, be prompt, and thorough in providing the answer. Your entire loan could hinge upon this one item and you don’t want to get rejected because you could not find the time to respond to the lender’s inquiry.
In review of this article, and brief synopsis.
After you have received your mortgage pre-approval, continue on with your life as if nothing has changed. Keep making payments on time, don’t close out any accounts and don’t add any new debt. Along with the other suggestions above, this should keep you prepared and ready for the final loan closing.