Do’s and Don’ts in the Home Buying Process
Before you get started on a loan application, take a deep breath, clear your mind… and accept the fact that you will be required to provide A LOT of documentation. Work with a good loan officer, and you’ll only need to do it once!
Borrowers often get frustrated when more and more things are asked from them, along with detailed letters of explanation for this or for that, seemingly causing delay after delay. Do yourself a favor: don’t complicate things more than they need to be.
Below is a Do’s and Don’t list, before and during the home buying process.
Absolutely must DO:
Get a copy of your credit report
You can do this for free, once a year, at www.annualcreditreport.com . Make sure to pull all three credit bureaus: Equifax, Transunion and Experian, and check for errors or bad information that needs to be removed.
I offer free credit analysis, and I can use either your own report, or a fresh one if you submit an online application.
Stay current on your existing accounts
A 30+ days late payment on any other mortgage in the past year will most likely be a deal breaker for you.
Late payments on auto loans or credit cards might be cleared with a short explanation, but they will hurt your credit and the pricing of your loan. Next thing you know, you are paying thousands of dollars more in interest because of a silly late payment. Setup auto-pay on your accounts if you suffer from forgetfulness.
Ask questions
Lots of questions. Better to get it out there now, than to deal with frustration later. The only stupid question is the one you don’t ask.
Provide required documentation in a timely matter
The faster you can obtain requested paperwork, the faster your loan will go. If for any reason you really don’t have time, ask your loan officer and ask for help. With the documents you signed, he or she is usually authorized to obtain financial information on your behalf.
DON’T even think about it!
Change jobs, quit your job, or becoming self employed
Lenders like to see stability. A job change is an added layer of risk, and self employment needs 2 year of documentation to show profitability. If you really can’t stand your boss anymore… suck it up! At least for a while longer.
Incur new debt
Getting a new car will hurt you in two ways: it will increase your debt to income ratio, and it will temporarily lower your credit score – because of your credit utilization ratio being high. The last part applies to credit card balances as well – avoid shopping sprees.
Co-sign a loan
This is the same thing as incurring new debt. You are technically liable for the payment on the loan, and it will have to be included into your debt to income ratio.
Spend the money you put aside for the loan closing
Need I elaborate on this…? Be smart!
Apply for new credit
Too many credit inquiries make you look desperate and therefore risky. It’s fine if you’re shopping around for a good mortgage, and you do it within a 30day period. But forget about applying for new credit cards, even if you are not going to carry a balance.
Absolutely don’t apply for new credit when your loan application is in progress – you’ll trigger the need for letters of explanation and documentation on the new accounts. Sometimes it can prevent your loan from closing.
Make large cash deposits
It’s only okay if you’re a drug dealer. Just kidding, don’t do it. Federal regulation requires funds used in connection to mortgage loans to come from a legal, traceable source.
The lender will ask you for 2 months of bank statements, as well as statements from any other accounts that are helping you qualify or fund your mortgage. The underwriter will want to make sure that:
- You have enough funds
- You have been in possession of those funds for a while now
Making large cash deposits only raises questions on the source of the funds, which you will then have to document in detail. Does it sound like fun to you, because it’s a bit of a pain on my end.
Pay off your car loan
This is a strange one, isn’t it? Paying off debt is good.. right?
Wrong. Paying off debt is only good if we’re talking about credit card debt. As soon as you pay off your installment loans, you can expect your credit score to drop anywhere from 30-60 points.
If you do need to pay off your car to qualify, make sure your loan officer pulls credit first, and that the loan will close within 90 days – that’s how long credit reports are generally good for.
A little preparation will go a long way. May a smooth, speedy loan process be waiting ahead of you!
Apply online now to get started, or email me your questions at [email protected]
