As a borrower, there are very specific moves you should avoid making throughout the mortgage loan process.
Luckily, we don’t leave you in the dark and we’ll tell you upfront what you should and shouldn’t be doing while you’re trying to close on a home.
Today we will review the top 4 money mistakes borrowers make that could make or break closing on your dream home.
Let’s get started!
1. Moving money around
A general rule of thumb while closing on a home is to keep your money in the same place. If moving money around is unavoidable, it’s important to keep a good paper trail.
One of our underwriters, Anna says this regarding moving money around..
“Moving money around is okay, we can document transfers from one account to the other pretty easy. The issue is: “Undocumented Assets” this is when we have a large deposit and we are unable to document the source. All large deposits must be documented from an acceptable source per FHA, FNMA, VA, USDA guidelines.”
2. Applying for new credit cards
A TransUnion TRU, -0.87% study released in May showed that consumers increase their credit card spending as much as two or three times their previous rate just before they close on a home. Spontaneously applying for a credit card during the mortgage loan process could possibly get your loan denied altogether. Sometimes the problem can be fixed, but it ends up being a major headache for everyone.
One of our loan officer’s Derek, gives a great example of a borrower he worked with who faced this sort of dilemma during the closing process:
“My client was at Home Depot buying a washer and dryer. He got to the counter and the cashier asked him if he would like to save 10% on his purchase. He did the quick math in his head and calculated that would be $200 bucks off his new fancy schmancy washer and dryer- good deal right?!
He signs up for the credit card at the register and leaves Home Depot. Suddenly, he realizes what he has done and calls me at 9:30pm in a panic since we are a week from closing. We were able to save things but it involved a bunch of phone calls to Home Depot’s credit department and about $100 worth of credit supplements. Everything fell into place, but that credit card turned out to be not such a great deal after all.”
The application’s credit inquiry could plummet your credit score by several points. This may not sound like much now, but those few points could be the difference between you closing on your dream home or not.
Closing a credit card account is another decision you should consult with your lender about first. This could potential cause/affect your credit score for the worse. The key to remember is, your Loan Officer knows and sees these things all the time, they are the expert. So when in doubt, consult with them first.
3. Making big purchases
In all the excitement of closing on your dream home, you might want to impulsively buy new appliances or other big purchases.
Did you know these major purchases have the ability to keep you from closing on your home altogether and/or hurt your DTI (debt-to-income ratio)?
One of our Loan Officers gave an example of a past client who purchased a brand new car during closing.
“I had a client who’s car broke down and he went to the dealership to get it repaired. While waiting for the repair, the salesman that was trolling the lobby area says, “What if we traded in your broken car and helped you buy a new one? We’ve got some great deals today!”
The client, with nothing else to do while they wait, goes out to the lot to look around. The salesman ends up getting them set up in a new car with financing that is about $300 per month more than what they were paying with their old car.
This decision killed our DTI and now the client could only qualify for about 2/3rds of what they wanted to buy. We had to cancel our pre-qualification because their debt to income ratio was out of whack. They are currently renting until the car is paid off or they are able to sell it to get rid of that vehicle loan. Sad.”
These purchases have to be documented, and it’s better for everyone to just wait until the closing process is all said and done.
4. Switching Jobs
When you are trying to close on a home, the last thing you want to do is switch jobs or companies. However, there are a couple exceptions that can be made.
For example, if you’ve recently changed jobs before starting the mortgage loan process, but its in the same line of work- you will be fine.
Everything is being qualified on the borrowers current income with that current employer. So, if you change jobs that process starts over and everything needs to be re-verified, such as:
– Verification of employment
– Income amount
– Type of work (is it the same or different)
– Are they still W-2 or have they switched to 1099, commission or self-employed
– We won’t have pay-stubs and need at least one prior to close in most instances; so start date comes into play
How much of a problem this is really depends on where you are in the process. Changing 2 months before closing is easier to handle than 2 weeks before.
If there’s one piece of advice you takeaway from this article, it’s this… during the mortgage loan process, if there’s any sort of financial change you want to make – it’s a MUST to consult with your loan officer/agents first.
Even if it’s a decision you feel wouldn’t be a big deal, it’s better to be safe than sorry!
What are your concerns regarding the mortgage loan process? Are there any questions we can answer for you? Please comment below, browse our website, or give us a call 480-832-4343. Our team works so hard to be thorough and make this process as easy as possible!