No one wants money to stand in the way when their heart is set on owning a home. But all too often borrowers pull last-minute moves that put their financing in jeopardy.
“The events that can endanger the transaction are the kinds that happen at the last minute,” according to Joe Parsons, senior loan officer with PFS Funding in Dublin, California, “for example, an unidentified or unsourced deposit made two days before escrow that we cannot source.”
We asked Parsons to share some common mistakes that can sabotage your mortgage approval process.
1. Changing Jobs
“If I suddenly, at the last minute, change jobs and I don’t document it — [especially if I decide to do it between the time the loan is approved and close of escrow] — that could kill the deal,” Parsons said. That’s because lenders perform a verbal verification of employment within 24 hours of funding a loan. “We’ve had cases where the borrower decided to retire,” Parsons said, laughing. “Now I tell people not to quit their job before we finish the loan.”
2. Acquiring New, Undisclosed Debt
If your debt-to-income ratio is high and you go out and buy a new car, that could hamper the loan, Parsons said. (Your debt-to-income ratio represents the total amount of monthly debt payments, including the house payment, divided into monthly income.)
Lenders perform a pre-closing credit check, known as a credit refresh, immediately before funding the loan, to make sure the borrower hasn’t overextended themselves at the last minute. “They are looking to see if there’s any new debt that hasn’t been disclosed,” Parsons said.
If you decide to take on new debt before your loan closes, you’ll need to provide a letter of explanation to the lender. Hard inquiries will also appear on the credit refresh, like any request for a new line of credit.
3. Moving Money Around
If you’re going to make a down payment of, say, $50,000 to buy a house, every dime must be documented and sourced, explained Parsons, even if it was a transfer, payroll deposit or tax refund. If the money was transferred from another account, say from savings to checking, then the lender would need to see two months’ worth of bank statements from the source.
“Large deposits must be explained and documented,” Parsons said, lest the lender think the money came from an unacceptable source like a cash advance or money laundering.
Before You Apply
As with any new line of credit, it’s important to know where your credit stands long before you apply for a mortgage, as this will determine your eligibility for various rates. You can learn more about why it’s important to check your credit before buying a home here.