As a veteran real estate broker of 20+ years, I’ve had the luxury of working full time through some great HIGHS in our local market and some great LOWS and one thing about Real Estate that can be said (besides “location, location, location”) is that Real Estate is cyclical and those that can predict the trends first typically do best in any market….
I’ve decided this month would be a great month to give some great tips on what to avoid doing when applying for a Mortgage loan- especially since there are so many of my past short sale clients that would love nothing more than to buy a home today, but their credit hasn’t recovered yet enough to allow them to do so.
Per Mike Orr of the Cromford Report, “Sales in September 2014 were slightly weaker than last year which reflects the lack of financing available to ordinary homeowners. Tight lending standards, especially for first time home buyers seem to be having a major negative effect on demand. If Ben Bernanke cannot successfully refinance his home based on current lending rules, what hope do the rest of us have?”
Last month, we helped a couple of buyers purchase homes and they did go through quite a bit of stress in the end of the transactions related to the financing of their new home. I try my very best to mitigate that stress but without a crystal ball, sometimes it’s hard to predict things that the underwriters may have issue with about an application until the very end… with that said, when I asked colleague Ryan C. Nelson- Southwest Regional Manager of Academy Mortgage, he said the most important thing they do for their clients is work with them to improve their credit/FICO scores during the process because that will dictate what rate someone will get for a mortgage and from there determines their maximum loan amount too. The best rates/terms on a loan is 740+ FICO with 25% down. The average FICO score is 690 for FHA and 711 for Conventional applicants according to Ryan Nelson. Seems most of the clients we’ve worked with recently have been even lower than that… which can make homeownership tough to obtain.
I think for me the biggest piece of advice I can alert our clients to is that once you apply for a mortgage and are pre-approved, the process is just starting and it’s not over until the minute the transaction records and I’m giving them keys.
The mortgage company is required to verify EVERYTHING from job history, to re-pulling credit, to verifying rental history literally the day the transaction funds and records. I had a client last month that switched jobs during the process and created a huge scare, luckily her fiancé made sufficient income because had he not, they’d still be waiting for the keys to their new home and the lender did not find out until the day before we were supposed to close. It’s horror stories like these that I think may be keeping people from “dealing with” getting a mortgage… but are also keeping them from getting the home of their dreams too!
The underwriter of the loan is like a police detective and they look for any holes in an application that could lead to a loan going into default. Mind you, in 2006, it was the exact opposite- people were encouraged to lie on their applications and nothing was verified and because of that- the mortgage industry was blamed for the fall of our Real Estate market. (part of the cyclical market I referred to above) That is why today it feels like it’s harder to get a loan than ever- But if you can follow these simple tips we’ve gotten from Joe Smith of Cobalt mortgage and Lanie Martin of HomeOwners Financial Group- we can make it a whole lot easier on those of you thinking about buying a home soon.
- Do not lie on any part of your loan application. The underwriter will find out. No ifs ands or buts…
- Now is not the time to apply for financing for new furniture, appliances, car, that big screen tv, etc. Anytime you apply for credit, your credit report is pulled and that drops your score, even if you decided not to make the purchase. Do not co-sign for anyone for anything if at all possible!
- Do not get behind on any bills. Having a late payment hit your credit before the purchase is finalized can devastate your deal. Normally you must be current for at least 12 months minimum on all of your reoccurring debts.
- Lenders will go over your most recent bank statements. You will have to explain unusual deposits or withdraws and they will require clear documentation on them as well- Do not “shuffle” money between accounts.
- Do not have “mattress money”. All money used, even a gift from a family member, must get documented where it’s come from and usually must be in a bank account for at least 60 days in order to use it towards the purchase of a home. This is for both the initial earnest deposit and the final closing funds, so be sure to talk with your lender about where your money is that you plan to use and get their advice on how to access it and document it. (order a wire transfer, use of a personal check, purchasing a cashiers check, etc…)
- Do not change employment during the process. Gaps of employment of over 30 days can be a big problem so be sure to discuss in detail any employment history if you haven’t worked for the same place for the last 2 years.
- Do not throw out any paperwork or spend time trying to work around items needed by your lender, they ask for things because the underwriter does, so if you are not able to provide what they are asking for, tell them immediately so they can try to figure something else out and time is of the essence… so don’t drag your feet getting items asked for.
- With respect to fixing credit, I’ve written blogs on how to fix your credit yourself before you apply for a mortgage, but once you are working with a mortgage lender, DO NOT pay off charge offs, collections, close any credit cards or do anything that could impact your FICO/credit score without advice from your lender first- sometimes paying things off can worsen your score and if your loan was based on a certain score, that can really mess up everything for you which you don’t want.
Moral of this story: Confide in your Mortgage Lender and share all pertinent information with them, don’t try to hide anything and work with them regarding credit and money documentation. They are on your side to help you get the house you want! Their livelihood depends on it, so if you can trust them – it will make your life easier in the end- promise!