We have a saying in the mortgage business that a loan isn’t done until it is closed and funded. With post closing audits, sometimes closings don’t really mean the deal is done either, but that is a post for another day. Every now and then I see situations where borrowers unknowingly blow up their deals causing stress for everyone involved. In most cases, the borrower is a victim of their own ignorance of the mortgage process. The following is a list of some of the common things that people do to utterly screw up their mortgage approval.
New & Derogatory Credit: Not only do lenders check credit at the time of of application, both Fannie Mae and Freddie Mac require an updated credit pull within 48 hours of the closing. This pre-closing credit pull is initially a non score credit report. The primary purpose is to make sure that no additional debt has been obtained or late payments. The biggest mistake borrowers make is getting too excited about their pending home purchase and running out to Crate & Barrel to buy furniture. Or worse yet, deciding to go out and buy a new car completely destroying their debt ratios. The bottom line is that lenders are going to check prior to closing and absolutely no major purchases should be made while in the process of buying a home.
Moving Money Around: Lenders document every red cent associated with a transaction these days. You cannot simply just show up with a down payment. It has to be documented lest we have drug dealers, money launderers, terrorist, or just plan schemers buying homes. Borrowers often start moving money around not realizing that they are just creating a paperwork nightmare for themselves. Any large deposits showing up on bank statements must be documented. Often times, borrowers will not realize that statements have to be updated prior to closing and sure enough a new deposit shows up and then we have to track down the source of the funds. The rules are simple. Do not make any deposits other than payroll related in the middle of applying for a mortgage.
Changing Jobs or Employment Status: One of the main things lenders look at when underwriting a mortgage is job stability. A day or two before closing, lenders will call employers to get verbal verification of employment to ensure the borrower is still employed. You would be surprised at how often borrowers change jobs without telling their loan officer. Ususally the thought process is “but I am making more money…” However, the lender doesn’t know you are making more money! Changing jobs will trigger the need for new paystubs, etc. In addition, if you change how you are paid it could really derail your purchase. You cannot go from a salaried employee to self-employed or commissioned which require a two year history to count as income. Even going on maternity leave can cause problems. Any changes with employment need to be disclosed to the loan officer sooner than later or it could come back to bite you at the closing.
The takeaway from this post is that borrowers should not make assumptions and to share all information with their loan officers. Even the most mundane things can cause problems with mortgage approvals.
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