As a proud member of the Beverly-Hanks Mortgage team, our goal is the same as yours: to help you purchase a home while creating as seamless a process as possible. We are your advocate, just as your REALTORⓇ is your advocate.
That’s why we’re providing this quick “cheat sheet” of mortgage dos and don’ts. However, this is not all inclusive, or all exclusive. Check with your loan officer regarding specific questions.
8 Mortgage “Dos” for Homebuyers
1) Start Your Pre-qualification and/or Pre-approval Early
Getting pre-qualified or pre-approved helps you determine how much home you can afford based on the specific financial information you share with your lender. This investment will pay major dividends once you are under contract on the right home, as it accomplishes the following:
- Reduces the “unknown” risk associated with credit files, variable income streams, etc., by identifying any speed bumps early in the process. This allows time for solutions and strategies to be identified, implemented, and possibly reviewed by underwriting.
- Increases your confidence and that of your agent during the home search and negotiations. For you, this should translate into a better purchase price or a winning bid against another buyer.
- Reduces the time from purchase contract to closing, thereby enhancing your offer to purchase.
- Saves you money by protecting your earnest money, due diligence money, inspection fees, and appraisal costs invested in the home purchase prior to closing.
2) Be Available and Responsive to the Lender, Loan Officer, Loan Assistant, or Loan Processor
It is VERY common for underwriting to require additional documentation. Your response time is key, as the documentation must be reviewed and approved by an underwriter prior to full approval. The documentation includes, but is not limited to, the following customary items:
- ALL pages of your personal federal tax returns (business tax returns too if you’re self-employed or if you have 25%+ ownership in a business). State returns are not needed.
- ALL W-2s or K-1s.
- ALL pages of a bank statement showing your name as the account owner, address, and full account number.
- Consecutive bank statements (two months, but be prepared for three months in certain cases).
- Consecutive pay stubs (five if paid weekly, three if paid every two weeks).
- Copies of the cancelled earnest money check, or the cancelled due diligence check.
Keep in mind, these funds should reflect your personal account as the buyer—not the business, not from someone else’s funds, not a money order.
3) Be Specific Regarding the Source of Your Down Payment
If you as the loan applicant tell the loan officer that the source of your down payment is the sale of a home, the liquidation of stocks, or the liquidation of an IRA, then that’s what the loan officer shares in a cover letter for the loan file. This information then becomes what the underwriter needs to document prior to full approval.
An introduction of gift funds from an immediate blood relative, or setting up a margin loan with your stock broker, may be perfectly fine, but be sure your loan officer is informed early on. Surprise sources of downpayment within two to three weeks of closing could delay the closing.
Also, if money for your downpayment is in motion—such as an advance from an equity line, sale of stock, a margin loan, gift funds, or liquidation of an IRA—then having those funds deposited into a fully liquid account (i.e., checking or savings) is an immense help with full approval.
4) Keep Monies in their Own Accounts
Moving money from checking to savings, and then from savings to checking, and then from an online savings account to your local bank, and vice versa, can make for a very confusing money trail for the underwriter to document, and approve.
Have you ever seen a kindergartener attempt to “connect the dots”? Imagine if the picture is of a horse. You and I, as experienced adults, can easily see that it will be a horse when the five year old is finished ‘connecting the dots’. The underwriter is the kindergartener, but beware: If the underwriter cannot connect the dots, then the horse could be a unicorn, and unicorns don’t exist.
5) Secure Your Home Insurance
Select your closing attorney and your home insurance provider within the first week after signing the purchase contract. Share these names and phone numbers with your lender. Sufficient home insurance coverage must be documented and approved by the underwriter (and be paid at time of closing). Also, keep in mind that your title work must be ordered to prove that the seller has the legal authority to sell the property.
6) Keep Credit Card Balances Relatively Unchanged
If your credit card balance was $2,000 at loan application, but is now $8,000 as the lender prepares to send your loan file to the closing attorney, then be prepared for questions from the lender. This line of questioning could delay closing, so keep an eye on your expenses during your home purchase.
7) Pay Your Bills on Time
Your accounts will receive a soft credit inquiry just prior to closing. Think of this like a periscope on a submarine, taking a quiet and stealthy peek into the current status of your credit report. If your car loans, student loans, or credit cards were paid on time, but now they are past due, then that could be a costly problem, and likely delay your closing.
8) Stay at Your Job
Changing jobs or employers midway through a loan application is likely to delay closing by 2–3 days, or 2–3 weeks—possibly even a couple of months. Becoming self-employed or moving from an hourly or salaried job to a commissioned job could possibly delay closing by 2–3 years.
4 Mortgage “Don’ts” for Homebuyers
1) Avoid Large Deposits
Don’t make large deposits during the three months preceding a loan application or during the loan approval process. Employer direct deposits are easy for underwriting to understand. However, large deposits at the ATM, at the teller line, via incoming wire transfers, from undocumented accounts (i.e., other savings accounts where the lender doesn’t have a bank statement on file), or via mobile banking will likely require a signed and dated letter of explanation, as well as a copy of all credits and debits associated with the deposit. (Credits are typically the deposit slip, and debits are the checks that were deposited.)
Along the same lines, don’t make large cash deposits into the checking and savings accounts being used to document the down payment, the funds needed for closing (which includes closing costs), and/or “reserves”, which is commonly referenced when you own “other real estate.”
Banks and mortgage lenders are specifically governed by laws pertaining to money laundering and loan fraud. Unfortunately, all borrowers are painted with the same broad brush in this regard. Think of the USA PATRIOT Act that surfaced after the 9/11 terrorist attacks, and the rampant fraud that led to the housing crisis and deep recession of 2008–2009, which gave rise to the Dodd-Frank Act of 2010. Lenders must document the loan file so that any auditor in the future can easily document that the lender complied with all federal laws.
2) Don’t Assume You Need to Send Your Transaction History
Don’t send a transaction history of your accounts unless specifically requested by the loan officer, loan assistant, or loan processor. Transaction histories are not needed at application, but could be requested at a later date. Reasons why they would be requested could be to more fully document the cleared earnest money checks, due diligence checks, or additional earnest money checks, or to more fully document that the funds needed for closing are available in situations where money is in motion to prepare for the funds needed at closing.
3) Avoid Additional Credit Inquiries
It’s important to avoid requesting new credit inquiries after your initial credit inquiry with your mortgage lender. Wait until after closing to get a new car loan, to get 10% off of the appliance purchase with a new store card, or to charge furniture on a new account. As I often joke, “Pay cash for the Ferrari if you must have it.”
4) Don’t Choose an Online Lender
When picking the right lender for you, choose someone local who can meet with you eye-to-eye if the need arises. Choose a lender who can partner with you, and your buyer’s agent too, so that the team effort gets you to closing on time and makes the purchase experience as seamless as possible. It’s worth asking:
- How long has the person on the other end of the phone been doing their job?
- Are they experienced with your loan program or with your characteristics as a buyer?
- How many purchase loans has your loan officer helped get to closing in the past year? In the past 5 years?
- Will they be held accountable to your closing date, and what’s the harm to them if you miss closing?
Brought to You by:
Eric Clonch, Loan Officer, NMLS #327193
For more information on all of our financing services, or if you have any questions, call one of our professional associates today: (866) 858-2257.
— Beverly-Hanks WNC (@beverlyhanks) March 3, 2017