5 Tips to Help Keep Your Home Loan on Track After Application
Well…sort of. While you’ll naturally want to start planning for your move, and thinking about all the things you might need to buy for your new home, there’s one very important thing to think about.
It’s called your Debt to Income ratio and if it gets out of alignment, that home loan you just got approved for could wind up being rejected. Because your loan is based, in large part, on how much debt you’re carrying in relation to your income. So any new debt you add during this critical time – from making major purchases to simple credit card purchases – can have an impact on your loan.
Ricki Taylor with Synovus Mortgage has some tips to help homebuyer’s get to the closing table without a hitch:
1. Keep spending to a minimum up until closing
Live by the $500 max rule! Keep in mind that every dime you spend now, especially in excess of approximately $500 (as a round figure guide) will/can affect your balances. Be frugal and be smart! If you must have that big screen TV before you close, pay cash and be sure to have more than enough of a cushion in your account. Think twice before you spend!
2. Don’t borrow any money or open new lines of credit
Lenders will often pull your credit report again just prior to closing, for any number of reasons. If new debt shows up on the credit report—impacting your Debt to Income ratio—your loan could go back to underwriting and be subject to more scrutiny. In cases where the new debt is great enough, you may even have your loan denied. And that means no closing.
3. Show me (your lender) the money!
Your lender will ask you for your bank statements and tax returns. It’s important to provide all pages of the requested statements (even those that are blank) and any withdrawals or deposits must be adequately documented. Any deposits that can’t be proven cannot be considered as funds available to close…another potential roadblock to closing.
4. Tell your lender immediately about any funds you’re intending on receiving as a gift
It’s common for homebuyers to get some money as a gift for the down payment or closing costs—from parents, for example—when buying a home. However, it’s important to let your lender know immediately up front that you’ll be using gifted funds when buying your home. There are special procedures that must be followed when using gift money, and not disclosing the gift as a source of funds soon enough in the loan approval process can delay your loan approval and potentially put your closing in jeopardy.
5. Connect the dots on your employment history
Lenders will need to document two years of employment income, and any discrepancies will need to be explained. Make sure your IRS tax transcripts match income reported to the IRS, and be prepared to validate dates of employment, self employment income and any expenses that are reimbursed by your employer.
Of course, Ricki is much more diplomatic than I am. Based on some of my real world, really crazy real estate experience, I might translate her tips as follows:
- Do not buy, lease, trade or barter for a car…new or used
- Do not co-sign a loan for anyone buying, leasing, trading or bartering for a car…or a motorcycle, moped, bicycle or scooter, for that matter
- Do not get sucked into a “12 months same as cash” arrangement at retailers for furniture, televisions, stereos, computers or anything else…wait until after closing to outfit your man cave
- Do not pass go and collect that $2,000 from your brother, cousin, friend or co-worker who owes you money until after closing…unless your lender says it’s OK and proper documentation is available
- Do not use your IRA or 401k as an ATM, and make sure your spouse or significant other is following the same rules as you are
- Do not let anyone other than your lender pull your credit
Finding, financing and moving into a new home can be stressful. But with these tips from Ricki as a guide (not to mention my “Ripped from Reality” rant above), you can make the homebuyer’s home stretch a piece of cake.