Guide to Home Loan Success
Congratulations on beginning your journey to homeownership! Whether you’ve just been pre-approved or you’re already under contract on your dream home, our Guide to Home Loan Success is a must-read.
At KTL Performance Mortgage, we’ve been helping our clients achieve their dreams of homeownership since 2003. In that time, we’ve seen it all. There’s nothing more heartbreaking than seeing a loan get denied because our client did “something” they weren’t supposed to do, and didn’t know any better.
That’s why we’ve put together this Guide to Home Loan Success. You may not realize it, but during the mortgage process, every aspect of your finances, credit history, employment, and assets will be under review. One wrong step can delay getting to the closing table, or worse, can derail the entire process.
Follow our Guide to Home Loan Success to ensure that you make it to the closing table without any detours and achieve your dreams of homeownership.
GUIDE TO HOME LOAN SUCCESS
10 WAYS TO HELP YOUR HOME LOAN SUCCEED FROM PRE-APPROVAL TO CLOSING
No New Accounts
Don’t apply for or open any new accounts. This includes credit cards, store cards, student loans, personal loans, auto loans, or any other line of credit.
Applying for a new line of credit or increasing your existing balances will increase your minimum monthly payment. This will affect your debt-to-income ratios and may reduce your pre-approval amount.
If you’re already in the process, your credit will be pulled a final time right before closing. If you’ve opened new accounts or increased your balances, the best-case scenario is that closing is delayed by a couple of days while you gather the appropriate paperwork to provide to the lender. The worst-case scenario is that you no longer qualify for your loan.
No New Debt
Don’t increase your debt on existing accounts. This includes credit cards, installment loans, and any other line of credit.
Increasing your debt on existing accounts can have the same effect as opening new debt. It can increase your debt-to-income ratio which may reduce your pre-approval amount. This may delay your closing or even make you ineligible.
We know how exciting purchasing a new home is, and how exciting it is to shop for new furniture, fixtures, home improvement projects, etc! However, it’s very important to wait until after closing if you plan to use credit for any of those purchases.
Continue to make all of your payments on time. A single late payment will stay on your credit report for up to 7 years and will have an immediate negative impact on your score. Even if you are only making the minimum payments, make sure that they are on time!
Overdrafts and NSF Fees
Keep a close eye on your bank accounts to make sure you have sufficient funds and don’t have any overdrafts or NSF charges. During the loan process, an underwriter will be scrutinizing your financial behavior including your bank accounts.
We know that overdrafts happen and typically it’s an accident. A check clears earlier than expected, there is miscommunication between spouses, or a paycheck shows up late.
In the underwriter’s eyes, however, an overdraft can be a sign of poor financial management. It can raise red flags, which is the last thing we want during the loan process!
Avoid making any non-payroll deposits or transfers into any of your bank accounts.
This one can be confusing for many homebuyers. During the loan process, we must be able to document the source of every single dollar that enters your bank account. As part of federal lending guidelines, the lender must validate the source of all funds used in a mortgage transaction.
When the underwriter sees deposits on your bank statements, they will ask for canceled checks and a letter of explanation for every single deposit. The letter of explanation will usually determine whether a lender will allow you to use those funds. If the deposits are cash or the letter of explanation is not accepted by the lender, those funds will be “backed out” from your available funds to close, meaning you may have to come up with additional funds.
Bottom line, cash and non-payroll check deposits will greatly slow down the transaction! To play it safe, wait until after closing to make any cash or non-payroll check deposits.
Maintain your current workload and don’t reduce your work hours.
When we take your loan application, we are using the information that you provide as well as the information from your paystubs and W2s to calculate your monthly income. This monthly income is what determines the loan amount that you qualify for.
If you reduce your work hours after applying, this will decrease your monthly income. You may no longer qualify for the same amount. It may also signify to the lender that your employment is not stable.
Stay at your current job. This can absolutely be a dealbreaker! Changing jobs during the loan process is a surefire way to derail your loan.
Don’t change your marital status. Making up and breaking up is hard to do, and we want you to be happy. But be forewarned that getting married, divorced, or legally separated in the middle of your loan process will most definitely lead to heartache.
Accounts and Collections
Don’t close any accounts or pay off any collections unless instructed to do so by your Loan Officer or Processor. During the loan process, it’s important not to make any financial moves.
Guard your credit report! Don’t allow your credit to be pulled unless it’s absolutely necessary, such as when you set up your utilities or apply for a homeowner’s insurance policy.
If possible, all other credit pulls should be avoided until after closing. The lender will pull your credit right before closing. If they see new credit pulls on your report, they will want an explanation for each credit pull. This could delay closing.
During the loan process, when in doubt, ask your loan originator or your processor! They will give you the best advice for your unique situation.
All of us at KTL Performance Mortgage are here to ensure you achieve your dreams of homeownership! We succeed when you succeed.