9 Most Important Do’s and Dont’s After Applying for a Mortgage
Do tell everyone that you know that you are buying a home. Those people will have their stories to tell. They will tell you of the things they felt they wish they knew more about. They will tell you the things they feel went wrong in their search to buy their home. Take in all of these concerns and discuss them with your lender.
- Do keep copies of the most recent documentation that your lender has asked you to provide. When your next bank statement comes to you, make a copy for your lender. When you get updated paystubs, make a copy of those for your lender. This prevents you trying to find the documentation while you are preparing for a move and have packed everything away.
- Do be patient. In this age of documentation, lenders will likely ask you for things that you can expect them to ask for and they may very well ask you for items that you think are intrusive or down right stupid. Maintain your temper and provide the document in a timely fashion.
- Do ask questions. When an underwriter wants a document there is always a reason. We may not agree or understand the reason, but they are trying to document something. Ask your lender what the logic is. If the loan officer can’t get you an adequate answer, then they likely are not the quality lender that you deserve.
- Do respond to every request for documentation in a timely fashion. In most cases, if you are prepared for what the lender might want, you can provide it within a 24 hour period. Every day that you delay providing documentation is another day you risk not getting your loan done in time to complete the transaction.
- Do make sure that your lender knows who all of your professionals are in the transaction. You will need to select your realtor, your real estate attorney and your insurance agent.
- Do pay your 12 month insurance policy at least 2-3 days prior to closing and provide the policy and paid receipt to your lender. All loans require a 12 month paid insurance policy prior to closing. And do not allow your lender to convince you that it is ok to pay for your policy on a monthly basis. Some insurance companies do this because they collect a processing fee (added profit) each time you pay monthly. You must pay the policy in full prior to closing. After that, you can pay monthly if you’d like to.
- Do let your lender know if you and the seller have agreed to any concessions to the loan such as after the home inspection. If you have negotiated a $500 credit, be sure to tell your loan officer about that credit. One rule of thumb in lending is to never surprise your lender at the closing table. Often times, it will not be a problem, but don’t tempt fate. It isn’t worth it.
- Do plan on brining your spouse to closing. Even if you spouse is not on the loan, he or she will be required to sign a few documents. Once such document is the Homestead Waiver. This is the document that basically points out that you understand your spouse is buying a home for which you are not on the loan. That you cannot assert your rights to the property if he or she does not make the payments.
- Do not get 100% of your advice from your parents. Your parents have your best interest in hand, but the lending process has changed quite a bit since the days your parents got loans. The process has even changed quite a bit since 2006-2007 prior to the collapse of the industry. I have heard discussions from very smart people that say you cannot buy a home if you do not have a 20% down payment. That has not been the case since I got into the business in 1999. I also heard a conversation between a mom and daughter in which mom said she would never get a loan because her husband had changed jobs 2 times in the past 5 years. That simply isn’t true.
- Do not pay off collections until your lender instructs you to do so. It is not fair, but the fact is when you pay off a collection, it is treated in your credit score calculations as if it is a brand new collection. If your scores are close to any of the limits of the loan, you risk getting charged more in fees for the lower score or worse, you risk being rejected for the loan. Of ten times, lenders will simply make the collections be paid at the closing table. While that can be painful, it is better than being rejected.
- Do not deposit CASH into your account. Many consumers find this to be lacking in common sense. But here is the issue. The lender must “source” all deposits into your account. Lenders wont’ waste their time on $20.00 deposits, but most banks decide that a deposit of $500 or multiple deposits equaling $500 over several months will trigger an underwriter to question the source of the deposit. If you can “source” the deposit, it will not be counted as an asset. If you have cash around the house, deposit it into your account at least 2 months PRIOR to the lending process beginning. Any money in your account for at least 2 bank cycles is considered your money.
- Do not make any purchases. In some cases, you may have enough flexibility with your debt to income ratio that it isn’t a big deal. But if your ratios are close and you make more purchases, you may be denied. Even if you are not denied, your loan may have to go back to underwriting for another review delaying your purchase. Here is the bottom line. Any purchase you need to make can almost certainly be delayed until after the closing. One of the changes that occurred from the regulatory reform is that almost all loans go through a quick credit check review 1-2 days prior to closing. Any discrepancies will be uncovered. In some cases, even the over use of a credit card can be cause for an underwriter to review the file one day prior to closing.
- Don’t co-sign for debt. Most consumers think co-signing for a friend or family member doesn’t affect you. The bank will hold that liability against you in full. So if you co-sign for an auto loan that is $500 per month for the next 5 years, you are on the hook for that debt for the next 5 years.
- Do not close or change bank accounts. This type of activity will only cause you to document more and more information. If you hate your bank, my advice is to wait until after the closing and shut down the bank account immediately. If you really need to start a new account, open the new account and transfer the money from one account to the new account thus creating a paper trail. Leave both accounts open until after the closing then terminate whichever account you wish to close.
- Do not quit your job. I understand that a new job prospect may look tempting, but it can also be tempting for an underwriter to want to review your file. And if this new job or your old job involved bonus income overtime income or commission income to qualify for the job, that income will likely be not included on the new job. You can accept the job and just not start the new job until after the closing.
- Do not close any credit accounts. One of the misconceptions about credit scores is that closing accounts will always improve your credit score. In fact there are times when closing accounts will actually result in lower credit scores. This is not the time to be closing accounts and run the risk of your credit score going lower.
- Do not go on vacation or leave town without having access to or have someone who has access to any of your documentation. We will see from time to time a contract is accepted and the person leaves town the next day. When the documentation is returned to your lender, questions will come up. You need to be available to answer those questions and provide documentation to support those answers.