If you are looking to buy a home, be prepared to read and review dozens of property listings, home appraisals, inspection reports, and mortgage disclosures- all of which will require your time and attention. Sometimes though, borrowers will forget how their small day-to-day routines might affect the outcome of their mortgage loan. In an effort to educate consumers so that everyone can enjoy a stress-free mortgage loan process, I put together a short list of common borrower mishaps entitled, "don't do this..." to help make the process move along smoothly.
Don't Do This...
Don't Change Jobs
Lenders like to see stable income from an employer, so they know there is less risk of default. Changing employers and taking on a new line of work is risky in the eyes of a lender.
Stay put in your current job, (even if you secretly despise your boss) and re-evaluate your job situation after your mortgage loan closes.
Don't suddenly become a Self-Employed Independent Contractor
If you are a W2'd employee, your salary and income is fairly straightforward in the eyes of a lender. But transitioning from a W-2 line of work to one where you become a self-employed contracted employee (1099 income) changes the way you are qualified for a mortgage.
Self-employed borrowers’ incomes are documented not by recent pay-stubs, but through verified IRS tax returns for the past 2 years. A W-2 employed borrower who easily qualifies for a mortgage today, may have to wait 2+ years to qualify the moment they become self-employed!
If you are thinking of buying a house, be sure to discuss any planned changes with your mortgage professional BEFORE you make any employment changes- particularly if self-employment work is involved.
Don't Overuse or Misuse Credit Cards
Use your credit cards sparingly during the time you apply for a mortgage to your loan's closing. Keep your card balances to a minimum.
Don't Close old Credit Accounts
A piece of advice borrowers often read, is to pull their own credit to see where they stand. The second part, often left off, forgot, or not mentioned, is to NOT make any changes to your credit unless instructed to do so by your mortgage professional.
Far too often we see borrowers review their list of credit accounts, realize that they still have several unused charge cards still open from shopping sprees long ago, and start closing those old accounts. But resist the urge to "spring clean" your financial house until after your mortgage.
Closing old accounts, even that gas rewards card that you haven't used in years, will reduce the amount of credit available. If you suddenly have less available credit, this could cause you to have a lower a credit score and could affect the mortgage amount you qualify for. Don't close any accounts unless your mortgage professional specifically tells you to.
Don't Apply for New Credit During Your Loan Process
This is one is very important, so read it twice! While it may be tempting to start buying items like furniture or appliances for your new home, applying for new credit or charging-up large purchases can have a negative affect on your credit score.
Same goes for borrowers thinking of financing a new car just after they've applied for home financing. Unless you want to live in the back of your new car, it's best to WAIT until after your loan closes to buy those large ticket items. Failing to do so runs you the risk of closing delays or worse, the financing of your new house.
Reason why I mentioned to read this one twice, is because it's the most overlooked cardinal rule by borrowers applying for a home loan. It's so easy to become pre-occupied with our daily activities, that borrowers often forget the impact that these small trivial decisions might have on their home loan. Wait to buy that new refrigerator, sofa or new car until after the loan's closing.
If there's an urgent need to make a large ticket purchase, always discuss your plan with your mortgage professional before committing to a purchase. Your mortgage professional is here to help you- so discuss your finances openly so there are no surprises later on.
Don't Pay any Bills Late
Never ignore your bills. Yes, even the small $15 petty ones, that require time to write out a check or log on-line to your bank's bill-pay system.
Paying late, or not at all, is not a trivial matter to creditors (or your mortgage lender.) The moment you miss a creditor's payment cut-off date, the missed payment information is sent to the credit bureaus who will report that late payment (or collection), to your credit file. Having late payments and/or collections can cause a perfect borrower's credit score to fall dramatically. Don't jeopardize your loan approval; Always pay your bills promptly when due.
Don't Co-Sign on any Loans
Co-Signing a loan for a close friend or relative, may not seem like a big deal to your finances- but it is. When you co-sign for a loan, you are essentially increasing your debt-to-income ratio, which could impact your chances of getting a mortgage; even if your friend or relative promises that they are responsible and will making the debt payments on-time.
If you have a hard time saying "No" to your relatives, just tell them, "Sorry, my mortgage lender won't let me." We'll be glad to take the heat for you on this one- especially if it means your loan can close without a hitch :-)
Don't overdraft your accounts
Some mortgage programs require underwriters to review the applicants assets, such as checking and savings statements. Having overdraft occurrences on your statement may indicate financial irresponsibility to a potential lender. If you have any overdraft fees, tell your lender upfront, rather than hoping they won't notice (because they will).
The home buying process is already complicated—make it easier on yourself by avoiding those frequent, but common mistakes.
The key to having a successful stress-free mortgage transaction is communication between your Realtor, Mortgage Professional, Third Parties involved, and from you, the Borrower(s).
By having clear lines of communication, most mortgage problems can be averted. Listen to what your mortgage professional recommends. If you have questions, ask before proceeding. If you are confused on what to do, wait until you can get clarification.
I'm very fortunate to have helped so many first-time homebuyers navigate today's complicated home buying process. I've also been able to help countless others who have been turned away when other banks or lenders said, "No."
I urge you to review our team's past client reviews and testimonials, and you'll see just how dedicated we are to helping our clients succeed with their new home purchase. At Sierra Pacific Mortgage, we look forward to helping you enjoy a stress-free home buying experience.
Take advantage of our Mortgage Pre-Qualification- it's a FREE service we provide to all our potential borrowers. Give me a call, I'm happy to help!
Branch Manager & Residential Mortgage Loan Originator
2580 St. Rose Pkwy., Suite #230
Henderson, NV 89074
Office: (702) 420-2250
Fax: (855) 689-6691
Some products and services may not be available in all states. Programs, rates, terms, and conditions are subject to change without notice. Subject to verification of borrower qualifications, property evaluations and credit approval. Terms and conditions apply. This is not a commitment to lend and not all borrowers will qualify. Sierra Pacific Mortgage Company, Inc. may not be the lender for all products offered. Some loans may be made by a lender with whom Sierra Pacific Mortgage has a business relationship. Sierra Pacific Mortgage Company, Inc. NMLS #1788. Nevada Commissioner of Mortgage License #3268. Additional license info available at: www.nmlsconsumeraccess.org. Click Here to view all disclosure information. Sierra Pacific Mortgage Company, Inc. is an Equal Housing Lender.