Home Loan Tips
Pic credit to Stuart Miles
1st time homebuyers need a little coaching as to how to get a home loan and the credit game in general when it comes to getting a mortgage. Sometimes even long term homeowners don't realize how little things can affect your FICO credit score and thehome loan process, which in turn directly affect your chances of getting loan approval. Below are 12 things that every homebuyer and refinance person should know prior to submitting a home loan application.
12 things you should not do during the home loan process
1. Do not apply for any new credit or raising of credit limits on existing credit cards. Reason: The lender may pull your credit report again right before your loan closes to make sure your bill paying and spending habits are the same as when you originally applied for the loan. Pulling your credit for any new credit or extension of credit will lower your FICO credit score, and a newly opened account will lower the score even further.
2. Do not apply to buy any new vehicles, new furniture or appliances. Reason: The same reason as above, it will affect your FICO credit score in a negative way. Wait until escrow closes to make any purchases-even if it's a 6 month no payments it affects you negatively.
3. Don't change jobs until escrow closes. Reason: Your loan will be delayed or even denied. The delay will be caused due to the lender needing to verify your new employment, as well as re-verifying your old job. If the new job is in a different industry, your loan may be denied. Even if the pay is higher than the old job, your loan may be denied. Keep in mind, when applying for a new job, many employers pull credit reports. At the end of the loan process, if the lender pulls a new credit report, and sees a different employer name listed (the employer info will show on the credit report), than what is listed on the loan application, you will have issues.
4. Do not touch any monies in 401k, or other liquid accounts without checking with your Loan Consultant. Reason: Those funds may have been needed to qualify for the loan. Lenders do last minute checks to make sure the funds originally listed on the application, are still there. Even if the 401k funds aren't to be used toward your purchase they may be counted as reserves which plays a huge role in getting a mortgage. Also conversely, do not deposit ANY funds into your accounts that come from other sources other than your employers. Some borrowers get gifts of cash to help them qualify for a home loan, however, there are lender rules on gifts and if not followed upfront, these funds will not be allowed to be used in your transaction. Your deposits will be monitored closely by the lender so when in doubt, before depositing these types of funds, check with your Loan Consultant.
5. Try not to leave town the week your loan is funding. Reason: If a last shread of documentation is needed, not being available to provide it could throw a wrench in your chances of getting a mortgage or even a denial of your loan.
6. Do not close, or transfer bank accounts that are listed on the loan application prior to escrow closing. Reason: This makes lender go crazy! It creates a paper trail mess and will delay your loan funding. Again wait until escrow closes.
7. Check your credit on your own, before letting a lender pull your credit report. Annual Credit Report.com allows you to pull your credit report once per year for free. You may have to pay to get your credit scores, but scores aren't what you're looking for here. Look for any misreporting data or errors on your credit report that can hurt your score. Have your report pulled at least 90 days prior to applying for a home loan. This will help you minimize any last minute surprises that may pop up with the lender, click here for a quick read on potential mistakes on your credit report.
8. Pay your existing mortgage payment and other debts (for refinance loans) Reason: If your new loan doesn't fund on time and you haven't paid your other debts in anticipation of some of them being paid off with the proceeds of your cash out you are to be receiving from the new loan, your credit report may get hit with late payments. Lenders are notorious for delaying fundings on loans. Large workloads, untrained staff etc...can lead to lender delays. If delayed, the lender may have to pull a new credit report, since reports are only good for 30-60 days, and if the new report shows delinquencies, your loan may be denied.
9. Do not start any home remodeling prior to or during your refinance. Reason: Lenders will not allow a conventional or normal FHA loan to fund on a property that is currently under renovation. That would be classified as a construction loan. A 203k loan however, will provide renovation financing so that you can buy a home in as-is condition where some repairs are needed. Wait until escrow closes than start your project. The appraiser will mention in their report if they saw a remodel in the process, which will than alert the lender. If the appraiser fails to report the remodel, and the lender finds out along the line, the appraiser is subject to losing future business from the lending community. So rather than put themselves on the line, they report what they see.
10. Try not to over react when a problem arises on your loan. Reason: Sometimes if a lender denies the loan or is asking for documentation you can't provide, there may be a remedy. An experienced Loan Consultant may have to change lenders or adjust the loan criteria. The Loan Consultant may be able to provide alternative documentation to satisfy the lender.
If you feel your loan is taking too long, and you are not being given a satisfactory answer that makes sense as to why the delay, changing lenders may be in your best interest, but before you change lenders advise your existing Loan Consultant. Having your credit report run again may have an adverse affect to your credit since the initial lender will run your credit again prior to issuing final loan documents and than you'll have some explaining to do and possibly a lower credit score.
Remember honesty is a two way street!
11. Ignoring the Overall House Payment. The one thing different owning a home versus paying rent is that you are now responsible for paying the property taxes and the homeowners insurance and if the subject property is a condo or townhome a monthly homeowners association fee is owed. You need to figure in the yearly taxes, insurance and dues all in the form of a monthly payment. It's not just the principle and interest that's due it's the whole enchilada!
12. Not Shopping For A Pre-Approval. It's vital that you shop for a home loan BEFORE you shop for a home! Don't put unwanted stress on yourself and try to race to get a pre-approval once you've found a home you like only to be let down later that there is either a loan qualifying snafu or another buyer's offer (who has a pre-approval) was accepted over yours. Get this done first and out of the way.
There are several more no-no's I can add, but the ones mentioned above are the ones I run into most often.
Call me for details or click here to apply to send me your loan scenario or get prequalified today! Increase your chances on getting a mortgage, by understanding the home loan process and knowing these home loan tips. Feel free to give me a call with any questions or concerns, or go to my home page and chat with me or select the text option on my home page as well.