Buying a home is very exciting. However, nothing can be a bigger disappointment than finding out that your loan is denied before you are about to close your transaction!
You’re a week away from having the keys to your new home and your loan officer calls to let you know that your loan was denied due to a change in your financial profile. This can and does happen, But there are a few things that you can do to make sure that this won’t happen to you.
Keep the following points in mind while you are in the process of buying your home:
- Don’t Apply for New Credit of Any Kind. Don’t respond to any invitations to apply for new lines of credit and don’t establish new lines of credits for furniture, appliances, computers, department stores etc. Even if there are no payments for 12 months, we will need to count this debt against you. This will also have an adverse effect on your credit score. Wait until your loan closes to purchase items for yourself and new home. It is also important to limit the amount of times you have your credit pulled, as each occurrence will need to be explained.
2. Don’t Max Out or Over Charge on Existing Credit Cards. Running up your credit cards is the fastest way to bring your score down. Once you have engaged in the loan process, try to keep your credit card balances to below 30% of the available limit.
3. Don’t Close Credit Card Accounts. If you close a credit card account, it can negatively affect your FICO scores as your credit is based on History. You may have a card that is never used, but dates back 10 years and your scores do weigh heavily on this. If you really want to close an account, wait until after you close the loan.
4. Don’t Raise Red Flags to the Underwriter. Don’t change your name and address, don’t co-sign on another person’s loan. Don’t open up a new checking/savings account, make sure your taxes are filed. The less activity that occurs while your loan is in process; the better it is for you.
5. Don’t Make Large Unexplained Deposits Into Bank Accounts. Any Deposits into your bank accounts that do not match your past income history will be questioned by an underwriter unless the deposit is documented as a gift or can be explained. This includes cash deposits and moving funds from one account to another. Make sure you write your offer check from the same account you intend on writing your purchase and sales deposit. All bank accounts must be verified.
6. Don’t Make Changes to Your Employment/Income. Employment stability is a huge factor in the underwriting loan process. Quitting or changing jobs or even moving positions within the same company can greatly endanger your loan approval. Inform your loan officer immediately of any changes to your job, position or income and even the hours you work.
7. Your Down Payment: Do you have your down payment all set? Is it in one account? Have this prepared before you purchase your home. Whether it is gift funds, liquidation of your retirement or moving funds from one account to another. By having these funds all in one account, it will simplify the process. If you receive a Gift, let’s say for $1,000 from family, Don’t deposit $900 or $1100, as this will be hard to explain why the amount is different from the Gift amount. Keep it Simple!
8. Do not make any Large Purchases: If you purchase furniture with no payments for a year, banks will debt you for this. If you buy a small home in cash, banks will debt you for the taxes and insurance. College Tuition, even if the loans are deferred, banks will add this to your debts.
Bottom Line: Don’t Make Any Adjustments/Transfers in Your Financial Picture. If you even had to question your decision, make sure you talk to your loan officer first. Don’t make any changes in investments, Move your accounts or transfer, close accounts, open new accounts, or substantially alter your asset picture.
Share this with anyone you know who may be purchasing a home.
Remember, if you have a question, please call me anytime!! It may be the difference in owning your new home or being denied!!
Bill Nickerson | NMLS #4194 | Cell 978-273-3227 | Email Me.