Mortgage - Process - Do and Don't

Do you know the Do's and Don'ts of the Mortgage Process?

While you are considering the purchase of a new home or exploring refinancing your current home, you should NOT do anything that will have an adverse effect on your loan from this point through the rest of the process. We know it is tempting to begin making your new house a home or to spend your new savings on fixing your existing home, but this is the time to keep your finances stabilized until your loan closes.

The key is to contact your Loan Originator (Mortgage Broker or Banker) if you think you will be making any changes to your financial situation; even the seemingly most logically beneficial moves can backfire and cost you thousands of dollars or even your ability to obtain financing at all.

To have your pre‐approval or loan commitment remain valid please pay close attention to the Do’s and Don’ts below:

The Do’s:

  • Do – Be sure to read and understand all documents before you sign.
  • Do – Accurately report all your debts.
  • Do – Be honest about all your sources of funds you will use to purchase your home.
  • Do – Be upfront about any credit problems you have or have had in the past.
  • Do – Be wary of unsolicited loan or refinance offers that you receive in the mail or through e-mail.
  • Do – Always pay your mortgage payment on time, even if you re having a dispute with your loan servicer.
  • Do – Contact your loan servicer immediately if you are having problems paying your mortgage.
  • Do – Provide all documentation for the sale of your car personal items, if any current home, including sales contract, closing statement, employer relocation/buy-out program if applicable.
  • Do – Keep all originals, and have access to all your pay-stubs, bank statements and other important financial documents.
  • Do –  Always review your new credit report – It could have been just pulled prior to closing.
  • Do – Provide your Earnest Money Deposit from your own personal bank account or acceptable gift funds.
  • Do – Notify your Loan Originator if you plan to receive gift funds for closing.
  • Do – Notify your Loan Officer of any employment changes such as recent raises, promotion, transfer, change of pay status, for example, salary to commission.
  • Do – Stay employed if employment income is used for loan approval.
  • Do – Save money to your account provided for verification of assets.
  • Do – Make timely payments on all current debt obligations, including any current mortgage, car, student loan or credit card.
  • Do – Notify loan officer regarding any changes to your employment status, (i.e., promotion/demotion, job loss).
  • Do – Notify loan officer of any loss of income.
  • Do – Notify loan officer of any depletion of funds needed to close.
  • Do – Notify loan officer of change of current address, phone, or email.
  • Do – Notify loan officer of any deposit you expect to made not related to your payroll, pension, SSI, or income tax refund.
  • Do – Notify loan officer if you expect to receive gift from relative, employer, union hall or non-for-profit organization.

The Don’ts:

  • Don’t – Sign any blank documents.
  • Don’t – Overstate your income.
  • Don’t – Overstate your length of employment.
  • Don’t – Overstate your assets.
  • Don’t – Change your income tax returns.
  • Don’t – List fake co-borrowers on your loan application.
  • Don’t – Provide false documentation or permit someone to provide false documentation about you.
  • Don’t – Change jobs/employer without inquiring about the impact this change might have on your loan. (See note 1)
  • Don’t – Make any withdrawals or deposit any large sums of monies outside of your payroll deposits, particularly cash or sale of personal property. Many guidelines require substantial documentation as to the source of these deposits. (See Note 2)
  • Don’t – Open or increase any liabilities, including credit cards, student loans or other lines of credit during the loan process.
  • Don’t – Make major purchases prior to or during your contract, such as new car, furniture, appliances, etc. as this may impact your loan qualification. (See Note 3)
  • Don’t – Take advances of any cash from credit card or borrow funds for closing.
  • Don’t – Run up a Home Equity Line of Credit (HELOC). (See Note 4)
  • Don’t – Close or open any asset accounts or transfer funds between accounts without receiving the correct documentation required for your loan. (See Note 5)
  • Don’t – Make payments on collection accounts (see note 6)
  • Don’t – Change your legal name.
  •  Don’t – Take any unpaid time off.
  • Don’t – Schedule any vacation or time off for any reason if all possible before closing.
  • Don’t – Alter any documents in any way.

NOTES:


1. Change jobs: Proof of a steady income, especially in the same industry, is one of the most important aspects of a mortgage approval. Avoid switching jobs until your loan has closed, if possible. If you must switch jobs, be sure your new job is in the same industry as your old one.

 

2. Deposits or withdrawals: Part of the mortgage application process includes providing recent bank statements. Anything out of the ordinary, including large deposits or withdrawals, can raise a red flag. If you’ve received a gift for your down payment, make sure you discuss how to document it with your mortgage officer at the time you apply. It’s not a deal-breaker in getting your mortgage application approved, but the source of the funds and the nature of the deposit needs to be discussed to avoid problems with processing your application.

 

3. Large purchases on credit: While it can be tempting to want to furnish your new home or park a brand-new car in your new driveway, avoid making any large purchases on credit. This raises your DTI. It also adds inquiries to your credit report, which can lower your score and raise a red flag to lenders. You can, however, continue to use your credit as normal. Make small purchases and pay them off, if possible, to continue to show that your debt-to-income ratio is stable and your spending is in control.

 

4. Home Equity Line of Credit: A home equity line of credit works like a credit card, and many of the same rules apply. Making purchases on your home equity line of credit affects your debt-to-income ratio, or DTI. Plus, it can indicate to a lender you are relying too much on credit. You shouldn’t rely on credit when you apply for a mortgage. Show the lender that you have enough income to live on the money you make – not the credit cards or lines of credit you have.

 

5. Closing credit accounts: Don’t close any of your credit accounts, even if you no longer use or need them. Closing your accounts sets off a chain reaction, reducing your available credit, raising your debt to income (DTI) ratio, and potentially putting your loan at risk. While it may sound like a great idea to close the credit accounts that you are not currently using, it can cause mortgage application problems if you are not careful.

 

6. Making payments on collection accounts: If you make payments on an old collection account, the account is considered “current.” This can actually drop your credit score and hurt your chances of getting approved. In addition, making payments on old collections can revive their collection status, as a creditor is only able to pursue you for payment for 7-10 years from the date of the last payment that was made (depending on the state in which you live). Making a payment on a collection account can revive it from the “dead,” so to speak, and you could be on the hook for it for many years to come. If it is nearing the 7-10-year mark, sometimes it’s best to just let it be so that it’ll fall quietly off your credit report.