Recently, we heard that several Buyers (not ours, thank goodness!), had ruined their home loan process and new home purchase by:
1."Borrowing" money from their down payment, or just spending it outright.
2. A couple of others went out and bought new furniture/cars.
3. Another charged up one credit card to the tune of $20K.
When you are buying a home, you want your financial records and everything associated with your finances to be super squared away so you can qualify for the lowest rate available at the time of your application. It's an admittedly stressful chore to prepare for applying for a home loan. Following the 10 commandments below will help you watch your P&Qs on your way to home loan success.
I. Thou shalt not change jobs, become self-employed, or quit your job
If potential buyers are looking at location, location, location, potential lenders are looking for consistency, consistency, consistency. Someone who changes jobs frequently or has a on-again, off-again work schedule sends up red flags of caution to a loan officer. It's best to put your head down, sit and stay for now. Change jobs after you change your mailing address.
II. Thou shalt not buy a car, truck, or van (or you may be living in it)
Your lender wants to see absolute certainty that you will pay them back. Yes, they expect you to pay them back. They're counting on that. One way to show them you are reliable and dependable is to hold off on making any large purchases.
III. Thou shalt not use credit cards excessively or let current accounts fall behind
Oh, yeah. Heavy credit card use or not paying bills on time puts some serious dents to your credit score by negatively impacting your debt-to-income ratio—something a loan officer looks at closely. Stay the course, steady as you go. Pay monthly bills on time and do not open any new lines of credit, no matter how appealing the offer may be!
VI. Thou shalt not spend money that you have set aside for closing
The old saying, slightly tweaked, works here: You use it, you lose it. Don’t jeopardize your ability to pay closing costs buy spending the money you’ve set aside for that specific purpose. That super deal, that gotta have it anything must wait.
V. Thou shalt not omit debts or liabilities from your loan application
For real. In today’s day of you-can-find-out-absolutely ANYTHING on the Internet, if people really think they can hide the $20,000 owed in back taxes, unpaid utility bills, child support, judgements-- they're dead wrong. Even shading on small debts or liabilities will make your dream home just that…a dream. 'Fess up', tell all, lay it all out on your loan application.
VI.Thou shalt not buy furniture
Yes, that new living room suite would look perfect in your new-home-to-be. But remember Commandments II and III? The same extreme cautions apply here. Stay focused, keep your eye on the goal. The furniture can wait.
VII. Thou shalt not originate any inquiries into your credit
Each time you make an inquiry about your credit, or another entity pulls your credit, your credit score loses points. Not fair? No, but it's a fact. And if you only have a handful of accounts or a short credit history, credit inquiries can have a much greater impact on your score. If you absolutely must, must, must see your score, you can request a free copy of your credit report from each of the three major credit reporting agencies – Equifax, Experian, and TransUnion – once each year at annualcreditreport.com. It’s smart to request a credit report from each of these three major credit reporting agencies and to review them carefully. It's possible each credit report may have inconsistent or conflicting information; even inaccuracies. If you spot an error, request a dispute form from the agency within 30 days of receiving your report. You should make this credit "sweep" before applying for a home loan to make sure your credit reports are accurate.
VIII. Thou shalt not make large deposits without talking to your loan officer
If a friend, family member, or a stranger wants to give you a cash gift that's more than 50% of your monthly income, maybe to help you with the down payment make certain the lender understands it’s a gift and not a loan. What you will be required to do in this case is have the donor write a gift letter to the lender and include the relationship to you, the address of the property you're purchasing, the total amount of money gifted, the date of the donation, and a statement saying that nothing is expected in return. If in doubt, ask your loan officer.
XI. Thou shalt not change bank accounts
Hate your bank or credit union? Who doesn't? Switching financial institutions during a home loan process could prevent you from printing off necessary copies of statements required. Unless you receive and keep paper statements. Faililng in this can really complicate things with your lender when you’re asked to prove your income, spending, or identity. Just stick it out with your current financial institution until you're in your new home and then say "Bye!"
X. Thou shalt not cosign a loan for anyone
Cosigning a loan for anyone, even your nearest and dearest who really would appreciate your help, at any time is never a good idea. No matter who the person is, or why you're being asked to cosign, the bottom line and huge risk is always this: if the person you cosign for defaults on the loan, the bank will demand that you fulfill the financial obligation. Such an unanticipated financial event can ruin your ability to pay your home loan. You actually risk foreclosure on your OWN home if your cousin stops paying his car loan. Your good deed can come back to bite you!