It’s all about common sense. You apply for a mortgage, and the lender expects you to be completely open about your financial picture and to use common sense while the application process occurs. It sounds simple enough. However, that doesn’t always happen. Here are the 5 most common mortgage mistakes people make as they apply for a loan.
1. Depositing Large Amounts of Undocumented Funds
Sometimes, people seem to go a little sideways and mess up their chances of getting a loan because of some bad moves or changes to that financial snapshot. For instance, they may make a large bank deposit without any real proof of where it came from or how they got it. That’s not a good thing.
“Lenders are trained to assume the worst because you just never know,” says Steve Fox, vice president of First Savings Mortgage Corp. in McClean, Va. “A lot of changes have been made to protect lenders and borrowers to make sure loans that aren’t needed aren’t written. The lender wants stability. It is illegal for someone to get a loan who doesn’t qualify.”
Moving money around in your accounts could be a big deal, too. But it won’t be an issue if there is documentation of where it came from.
“When you receive money from a legitimate person or place and have documentation, then that’s OK,” Fox says. “But let’s say you lent your buddy $5,000 awhile back and he finally came through. It won’t cut it unless you have the original IOU official note with signatures, and then he writes you a check. There has to be documentation.”
During the application process, potential borrowers should not go crazy in anything that has to do with their bank and credit card accounts, or jobs.
The loan process is never over until you sign the dotted line. So, that means you have to be on your best behavior and not do anything to jeopardize getting the loan.
Fox says that lenders should be working with their clients for the best outcome and educating them on what they should and shouldn’t do during the application time period.
2. Hiding Information from your Lender
Joe Spisak, sales manager at Inlanta Mortgage Inc. in Oak Brook, Ill., says that hiding any information is not a good way to get your lender to help you get the loan you want. Hiding information can be anything from not giving an explanation about an employment gap on your application or how magically $5,000 appeared in your bank account for the down payment without any explanation.
There are things you shouldn’t be doing while applying for a loan and that includes changing employment (with some exceptions explained below) or increasing your debt by buying a car or buying a bunch of new furniture for the house you haven’t gotten yet, he says.
“Lenders just know when something is up. You won’t get the loan declined unless you can’t prove these things with documentation,” Spisak says.
3. Not Starting Early Enough
He adds that if people should start the loan process long before they actually go look for homes, things could go a lot smoother for them.
“Get your credit report pulled. If it’s not good or you can get approved but just can’t get you a great interest rate, then a reputable lender can help you figure out how to make it better,” he says.
But many times, clients find the house, apply for the loan and then get turned down for the loan because a red flag appears on their credit report.
“Sometimes, that means they lose a house contract because they can’t get their credit in shape within the time limits of the contract,” he says. “So, there’s no harm in getting your credit pulled and then examined way before you plan on buying a house. It’s empowering to figure out what you need to do to make it better.”
You may have to rethink your plans and slow down the train. Patience can be your best friend when it comes to getting a loan.
4. Consolidating Student Loans
Spisak says that student loans are becoming a big problem, too. Some people think by consolidating those student loans, that they will have a better chance at getting a mortgage.
“But changing up or consolidating student loans can become a nightmare,” he says. “It is a slow process to get accomplished. It just boils down to working with a good lender that can go through the credit report and seeing what actions will hurt you and what will help.”
5. Changing Jobs
Fox says there is a lot of misconception about pursuing new jobs while going through a mortgage application process.
“It’s OK as long as you have an offer letter. The problem can occur on the timing of when you start the job,” he says.
For instance, you are scheduled to close on your mortgage Dec. 31. You resign from your old job – the one that the lender based all the information for your loan on – and you start your new job Jan. 10.
“If you resign from your old job before the loan goes through, the lender cannot use the income from the old one or the new one,” he says. “Sometimes in this situation, you will either have to move up your start date of your job or delay the closing on the loan.”
Avoiding Mortgage Denial
Luckily mortgage applicants don’t have to guess what not to do when applying. Any halfway decent loan officer will advise their clients about pitfalls to avoid.
If applicants are unsure about something, they should ask their lender ahead of time. Better to know that you shouldn’t change jobs or deposit that cash sooner rather than later.