Did you know that there are a 10 Commandments for the process of lending when you purchase or refinance a home? They aren’t just guidelines either; they’re commandments! Forget to follow one, and the results could be devastating! These are tried and true practices for making your lending process pain free.
1) Thou shalt not change jobs, quit your job or become self-employed during the lending process. It doesn’t matter if you can’t stand your boss or your customers are driving you crazy; don’t mess with your employment situation before you close on a loan. Your current income is used to calculate your qualification for a mortgage loan, and it will be verified. If your employment status or income changes before the loan closes, you might not qualify.
2) Thou shalt not co-sign for any loan for anyone. If your cousin wants you to co-sign for a loan while you’re trying to get a loan yourself, it’s going to throw off your debt to income ratio and create a bunch of red flags. Just say no.
3) Thou shalt not buy a vehicle or any large purchase during the loan process. By now you probably realize that taking out another loan while trying to qualify for a home loan is not a good idea, but even paying for a significant purchase with cash is not a good idea. An underwriter will review your total assets, which includes your bank account, and if those take a sudden dip, it could cause problems.
4) Thou shalt not use credit cards excessively, and thou shalt make all payments on time. If you’re trying to finance a new home, it’s no time to run up your credit card debt or skip payments. Don’t even be late on a payment. Your credit history will be scrutinized, so don’t mess with it.
5) Thou shalt not spend funds you’ve set aside for closing. There are always closing costs when getting a loan. Closing costs are funds that you have to bring to the table when you sit down and sign all of the closing papers. Your lender will tell you way in advance how much money you need for closing. Make sure you set it aside and don’t spend any of it. You don’t want to run the risk of not having the funds when you need them.
6) Thou shalt not omit any liabilities or debts from your loan application. When applying for a loan, it is not better to beg forgiveness than to ask permission. Skipping crucial financial information will not only make you seem dishonest, but it could also mean having to underwrite the loan all over, which might lead to a delayed closing and other potential problems.
7) Thou shalt not buy furniture, appliances, or other major household items before closing. Although you’re probably excited to pick out furniture for your new home, while you’re waiting for your loan to close is not the right time. Taking on additional debt or tapping into your savings is a bad idea during this time.
8) Thou shalt not originate any inquiries into your credit. Don’t apply for any other loans until after you close on your home loan. If you do, it could cause your credit rating to decline.
9) Thou shalt not make large deposits without first checking with your mortgage consultant. Unusually large deposits into your checking or savings accounts beyond your typical payroll deposits must be from sources that are verified by underwriting. These types of deposits could cause loan processing delays or even kill the deal altogether.
10) Thou shalt not change banks. The home loan process requires a minimum of two months of history on your closing reserve funds, so, opening a new financial account during closing may make it impossible to provide the history required.
The loan application, underwriting, and closing procedure can sometimes be a bit stressful, but if you follow these 10 Commandments of Lending during the process, it will go much smoother. Before you know it, you’ll smile from ear to ear as you receive the keys to your new home. Then, it will all be worth it.
Note: Opinions expressed are solely my own and do not express the views of my employer.