Ten Rules to Follow While Waiting for Finance Approval

Note:  This is a chapter in my new ebook called The Ultimate Guide to Buying (and then Selling) Your First Home.  I will post a chapter a week.  If you like what you read, you can pick up a copy here for the price of a candy bar!   Buy a candy bar or be a real estate guru!   This chapter outlines ten rules when waiting for closing.  Please follow these rules! .  The last chapter to be shared on this blog you can find here.

I met Steve and Sally for coffee two days later.  I do not like to lecture people from my soapbox, but with what I wanted to tell the young couple, it was a necessary evil.   Sally replied that I had not lead them astray yet, so it was fine.   Steve grinned and said, “Not yet anyway!”   I
smiled with them and went into my lecture. “When buying your first home, it can
be an exciting time after you have gotten through the negotiations, inspection,
repair amendment and appraisal.   You are
setting on cloud nine knowing that soon you will have a home to call your
own.  All that is left is to get the
final approval for financing.  . It is
time to go shopping for that new furniture to fill that living room, or get a
new bed for the master suite that will look so sweet.”  Sally said she had just been thinking that
exact thing that morning.   She wanted
all new furniture for her bedroom and living room.   Steve nodded his agreement.   I responded. “Well I am glad I talked to you
in time to stop these evil thoughts.”

Steve and Sally looked perplexed.  I went on.
“There is nothing worse you can do than go on a spending spree while you
wait those last two weeks before closing on your first home.”  I finished by telling them that a shopping
spree might add more expenses to their debt load, which could change their
approval status.   Lenders will check
their file one last time before they close to make sure nothing about their
situation had changed including their income to debt ratio.   They both looked shocked and thanked
me.  They wanted to know what other rules
did they need to follow these last two weeks. I handed them a piece of paper
with a set of ten rules for them to follow.

1. Do not charge
anything
– Credit cards are part of life, but they should not be during the
approval stage of buying your first home.
It is best to not use them at all during the two to three weeks you are
waiting to close on your home.  If you do
end up having to make some charges, alert your lender immediately with an
explanation.

 2. Do not change jobs – I am not talking
about getting fired here, because if you get fired, it is probably not a good
idea to move forward with a large financial commitment like a mortgage.   What this rule covers is you changing jobs
voluntarily.   The job of a lifetime
might be on your door stop, but your lenders like stability in their borrowers
and changing to a new job brings a lot of unknowns with it.   Will you be a good fit for the job?  Was the salary more or less than you were
paid before?  Does this mean you will
have to move again soon?   If you just
can’t pass up on the job of a lifetime, see if the employer is willing to let
you start at a future date after the home has been purchased.

3. Do not transfer
large sums of money from one account to another
– What a nice option for
you to have?  You have some money in one
account and you want to move it over to another account for reasons that do not
have to do with the home purchase.   Not
a good idea.  Just wait until the house
is yours.  If you do have to do this,
contact your lender with a full explanation as I am sure they will be asking
you if you don’t disclose this move.

4. Do not make a
large deposit into your checking account
– Large deposits into your
checking account raises red flags for underwriters.  Why?
Once again, Lenders like stability and a clean file with no questions
about your motives or intentions.  Where
did this money come from?  Will you need
it to pay your bills in the future?
They will also question if you are doing this because of some financial
difficulty that has arisen.   If you are
depositing a large sum of money into your checking account, they will question
the reason and source of the funds.

5. Do not buy a new
car (or any other large financed purchase)
– Debt to Income ratios play a
critical role in your ability to qualify for a mortgage.  A large purchase, like a new car, might push
your debt to income ratio beyond what is acceptable to the lender.   It is best to just wait to make these large
purchases until you are in your new home.

6. Do not close
and/or open any credit card accounts?
– There is always some interesting
advice on the internet about how closing or opening new credit cards can affect
your credit score.
(http://www.creditcards.com/credit-card-news/help/cancel-credit-card-6000.php).   When you are in the finance approval stage
of buying your first home, it is best to just leave your credit cards
alone.   Your preapproval for the
mortgage was based on the current number of cards you have in your wallet.  Why mess with this?  Don’t do it.

7. Do respond to
lender requests as quickly as possible
– As you know, lenders will ask you
for everything dealing with your background.
What most first-time buyers don’t realize that lenders will do this
until the bitter end of the approval process, sometimes even the night before
closing documents are due.   It is always
best to respond as quickly as possible to the lender so there is no delay in
the process.

8. Don’t try to
consolidate your debt
–  When you are
in the last stage of getting mortgage approval, you do not need to be worried
about consolidating debt.  Believe it or
not, this too can affect your credit rating. It is great that you want to take
this financial responsible step, just don’t take it a week before moving into a
home.

9.  Do pay off all Tax Liens, judgments and/or
collections
– If you owe any kind of liens, judgments or collections, you
need to get these paid off.   Hopefully,
you would have done it before this last stage of the process, but if you have
not, feel free to get these paid off as they will affect your loan approval as
well.

10.  Do pay all your bills on time. – Finally,
it is the best plan to always pay your bills on time, but it is especially
important during this time.   A late bill
can adversely affect your credit report, which can affect your ability to get a
mortgage.   Don’t think about it, just
pay those bills even if you must skip Starbucks once or twice.

 

I reminded Steve and Sally that it is always stressful to
get a mortgage approved and it lasts until you sign the paperwork at the title
company.   You can’t do anything during
this approval time that will ruin your chances of getting your first home.   If you follow these ten rules, you are
positioning yourself to have no nasty surprises.  In other words, just follow the rules! Steve
and Sally thanked me for the ten rules and we discussed the next step:  the final walkthrough.