Things Not to do During the Home Loan Process
Buying a home is exciting! You’ll need new furniture, landscaping, drapes, a refrigerator, …WHOA! Don’t forget you need to get a home loan in order to buy your dream home and fill it with wonderful things and memories. The home loan process can be tenuous and challenging if you are not prepared. I have compiled these things NOT to do during the home loan process from real life home buyers throughout my decades in the residential mortgage lending business. Never fear- out of a multitude of home buyers only one of these “oops” caused the buyer a delay in their home ownership but all became home owners.
All of the things not to do during the home loan or mortgage process fall within three important categories of lending. Commonly known as the 3 C’s- Character, Capacity and Collateral are the cornerstone of residential lending.
Character
Character as defined in the mortgage lending arena encompasses your credit and employment. During the loan process, the applicants character will be challenged numerous times. “Soft” pulls on the credit will be conducted throughout the home loan process. Any new debt will be added in to your debt-to-income ratios. In addition, a Verification of Employment will be made at the beginning of the home loan process and again before closing (perhaps more often).
Please do NOT do any of the following during the home loan process with regard to character:
Character and Credit
- Do not have your credit pulled. Hard inquiries on your credit report can negatively affect your credit score.
- Do not open new credit. In addition to the impact a hard inquiry may have on your credit, new credit will be added to your debt-to-income.
- Do not close credit. Closing credit (even if it is unused) could hurt your credit score.
- Do not make late payments.
- Do not co-sign for a loan. Co-signing for a loan will affect your debt-to-income ratio.
- Do not make credit disputes. Credit disputes on non-medical collection accounts over $1,000 aggregate or late payment disputes over $1,000 will need to be resolved.
Character and Employment
- Do not quit your job.
- Do not become self employed. Underwriting guidelines for W2 employees vary significantly from those whom are self employed.
- Do not change jobs. A new Verification of Employment will need to be done and your home loan closing may be delayed until your have your first 30 day pay stub.
Capacity
You need to prove that you can repay your home loan. Capacity encompasses debt-to-income and assets (and other compensating factors such as number of borrowers or loan program).
Please do NOT do any of the following during the home loan process with regard to Capacity:
Capacity and Debt-to-Income
- Do not increase your level of debt. Debt-to-income should remain equal to or better than it was when you began the home loan process. Maintain your employment (income) and debt (credit) throughout the home loan process as it was (or better than) when you first spoke to your loan officer.
Capacity and Assets
- Do not disturb your assets in any of the following ways: close your bank account and open a new one, deposit cash that can’t be tracked and traced, buy an island or any other purchase that results in a significant depletion of verified assets, move money between accounts. To keep the home loan process simple know that all monies must be verified (tracked and traced), seasoned (in your account for some time) and a home buyer may need reserves depending on which home loan product they apply for (monies left over after you close).
Collateral
Collateral refers to the home that you are buying. The importance of using a realtor when buying a home is eclipsed only by the fact that the seller pays the realtor fees (in most residential purchases)! Yes! A realtor will cost you nothing when you are buying a home. Not using a realtor may cost you in the end.
Kara Davis of Crew Lending will help you with all of your residential lending needs. She is a leading provider of mortgages in Lake Charles, Sulphur, Westlake and the entirety of Louisiana. She can also lend in 47 other states. Choose your lender carefully to ensure your smooth path to home ownership. Kara Davis will help you understand the loan process and work with you from Application to Clear to Close. For more information call Kara Davis at 337-842-0115.