Many of my clients have told me that they know a relative, friend, or neighbor who went through a nightmare trying to qualify for a home loan. I would attribute this to poor communication up front from the lender of what is expected of them. Here are a handful of tips to avoid those letters of explanation and the more and more documents that seem to be requested in the 11th hour.
Do NOT apply for other lines of credit – If you apply for a credit card, car loan, or other lines of credit, your credit may be pulled multiple times, which will cause 2 issues:
A credit inquiry will show up on your credit report
Your credit score will drop, hurting the interest rate and your ability to qualify
Do NOT open new lines of credit – Opening new lines of credit for something that you can mostlikely wait until after the transaction closes will:
Hurt your debt to income ratio
Lower your score, hurting your chances of qualification
Do NOT charge large items on your cards – Keep the balances on your cards at 20% of the limit or less because your credit will be refreshed throughout the process to make sure you are not putting yourself in more debt.
Do NOT deposit cash – Cash is King, but not when it comes to getting a home loan. All funds used to close a transaction must be sourced, whether it is for down payment, closing costs, or an escrow account. Sourcing can include a deposit slip, cancelled check, bank statement of where the funds came from and even a letter of explanation of what the funds were for.
Do NOT pay cards off with cash – This is similar to the last one, but it comes up enough for me to separate it into its own “do NOT” tip. If you need to pay a credit card down or completely off, using cash will greatly hurt your chances because, once again, it MUST be sourced.
Do NOT pay cards off with other cards – If you pay 2 credit cards off with another credit card, you are robbing Peter to pay Paul. This will not solve the issue of your debt to income ratio and will likely hurt your credit score as well. Using a debit Visa or something of the like is fine.
Do NOT transfer funds that are not sourced – A relative transferring funds into your account or transferring from an account that was not disclosed to the lender can be remedied, but it requires yet more bank statements and proof of deposits, which can be frustrating.
Do NOT take it personally – I mention this because when you have a loan officer questioning where funds are from, what your write-offs are for, why your income breakdown works the way it does, it can take a toll on you. Just remember, the items a lender requires are to protect said lender in a way that ALL information on the loan can be understood by an investor through documentation. Your loan officer may understand your situation, but when the loan ends up with an investor, that verbal clarification is gone unless it is also available in writing.
Following these tips of what NOT to do will prevent so many issues, headaches, and additional documents that you will need to come up with in order to get your deal closed. I know these are a lot of tips and they may be overwhelming, but it is better to know them up front rather than have them come up and cause a lot of stress when you should be focusing on moving into your new home.
REposted with permission of Andrew Post. Essex Mortgage Mortgage Loan Originator NMLS #716785 / CA-DOC #716785.
