Things To Avoid During Home Purchase And Loan Process

Things To Avoid During Home Purchase And Loan Process Include NOT Making Large Purchases

Mortgage loan underwriters will thoroughly review bank statements for the past 60 days. They will make sure that down payment and closing costs have been seasoned for at least sixty days.

• Mortgage underwriters will also review spending habits
• They will look at large deposits and large withdrawals
• Mortgage underwriters will also pull credit report throughout the mortgage approval process
• Underwriters will be questioning large purchases that show up on credit report
• For example, pre-approved for a mortgage loan but purchased a car or appliances on credit after submitting the mortgage loan application, the new large purchase will be reported on the credit report
• The monthly payments on the large purchase will be counted in calculating debt to income ratios
• Borrowers who have higher debt to income ratios, any additional monthly payment can affect debt to income ratios where many folks will not qualify
• Large purchases during the mortgage loan approval process can cause a mortgage loan denial due to higher debt to income ratios
• Never purchase a new car during the mortgage loan approval process
• A $300 new car payment is equivalent to a $70,000 mortgage and will definitely affect debt to income ratios

Large purchases should be delayed until after closing on the home.

Avoid Making Lifestyle Changes

Avoid making major lifestyle changes such as the following:

• Changing  job
• Trading car in
• Applying for new credit
• Co-Signing for other
• Do NOT Close or Open any bank accounts

Every action during the mortgage approval process will need to be explained to the mortgage loan underwriter with a signed and dated letter of explanation and supporting documents.  Any large deposits and large withdrawals all need to be explained to the mortgage loan underwriter.

Document Everything

Cash does not exist in the mortgage industry.

• All paper trail needs to be documented by providing canceled checks, deposit slips, and bank statements
• Many folks sell items after they have a home under contract
• For example, if a mortgage borrower is selling a vehicle and needs to use the proceeds towards the down payment, make sure to get a check from the buyer of the vehicle

Make a copy of the check, get a bill of sale, make a copy of the title of the vehicle, and provide the mortgage lender with the deposit slip.

Gift Funds From Family Member

Mortgage lenders allow gift funds from a family member and/or relative.

• However, gift funds need to be documented
• If you deposit gift funds in cash, that cannot be counted
• Gift funds must be deposited in check and/or wire funds
• Deposit slip, copy of the canceled check, and gift letter needs to be provided as well as 30 days bank statements from the gift donor

Gift letter needs to state that the gift funds are not a loan and will not be paid back.

Things To Avoid During Home Purchase And Loan Process Is Not Open Or Close Credit Accounts

Never open new credit accounts during the mortgage approval process.

• By opening new credit accounts, you will get hit with a hard credit inquiry
• Every inquiry in the past 120 days needs a letter of explanation written by you
• Every hard credit inquiry will also drop your credit scores

Each hard credit inquiry can drop your credit scores by 2 to 5 FICO points or more.

Things To Avoid During Home Purchase And Loan Process Include No Late Payments

Things To Avoid During Home Purchase And Loan Process included not being late on any minimum monthly payments. One 30-day late payment can plunge a person’s credit scores close to triple digits.

Mortgage Borrowers can have bad credit and get a home loan with bad credit.

• Mortgage applicants can have open collections and get approved for a mortgage loan without having to satisfy or pay off the old collection balance
• Loan Applicants can have a bankruptcy and foreclosure and qualify for a mortgage loan
• However, there are mandatory waiting period requirements after bankruptcy and foreclosure
• As long as mortgage loan applicants have passed the mandatory 2 and/or 3-year waiting period after bankruptcy and foreclosure, they can qualify
• Borrowers can have charge offs and still qualify for a mortgage without having to settle the charge off account

However, borrowers normally CANNOT HAVE HAD ANY LATE PAYMENTS IN THE PAST 12 MONTHS AND QUALIFY FOR A MORTGAGE. 

Bad Credit Versus Re-Established Credit

Things To Avoid During Home Purchase And Loan Process to religiously pay on time on all of the monthly debt obligations and make sure not to max out credit cards.

Mortgage lenders do understand that consumers can go through a tough time during certain periods of their lives.

• However, mortgage lenders want consumers to have re-established credit and want to see timely payment history in the past 12 months
• One late payment in the past 12 months may be doable
• However, multiple late payments in the past 12 months will definitely be a deal killer

Make sure that you pay every monthly bill on time and do not get any late payments during the mortgage approval process.

Overdrafts During Mortgage Process

Mortgage lenders do not want to see any overdrafts from mortgage loan applicants in the past 12 months.

• Any bank overdrafts in the past 12 months can be a deal killer for mortgage loan applicants
• Mortgage lenders will consistently ask for updated bank statements during the mortgage approval process
• Mortgage loan underwriters will carefully be reviewing bank statements for any overdrafts

Mortgage Borrowers who need to qualify for a mortgage with less than perfect credit with a direct lender with no lender overlays on government and conventional loans, please contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com. We are available 7 days a week, evenings, weekends, and holidays.