THE 10 COMMANDMENTS WHEN APPLYING FOR A MORTGAGE LOAN

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Many individuals do not realize that even the slightest change in your financial situation after you apply for a mortgage can delay or ultimately jeopardize the approval of your loan.

In my experience as a loan officer, I have seen each and every one of these commandments broken.  Unfortunately, some of those had the judge (I mean the underwriter) come down upon them, resulting in their loan being denied.

If you’re going through (or about to start) the mortgage application process, please take each of these ten commandments to heart.

1. Thou shalt not change jobs, becoming self-employed, or quit your job.This probably goes without saying, but any change in employment can cause a major issue in the approval of your loan.  This can even mean a change in your job position or type of pay at the same employer (i.e. from hourly pay to commission pay).  While it may be an ‘upward’ move with more potential income, it may just derail your loan.
   Hint: Just stay put ’til you’ve completed your closing.
2. Thou shalt not buy a car, truck, van, motorcycle, ATV, or any other vehicle.In most cases, buying a new vehicle involves numerous credit inquiries, a new loan that must have the new terms verified, and if it’s a trade in, sometimes it takes weeks for the old loan to be paid off.  And unless you qualify with both of these payments, then this may just delay your loan closing.
   Hint: Don’t buy a new vehicle, or you may be living in it.
3. Thou shalt not use your credit cards excessively or let ANY of your payments fall behind.
   Current regulations require lenders to not just check your credit at the initial application, but also at closing.  This is done to confirm there have been no major changes in you debts.  If you had a $100 balance with a $10 minimum payment on that Wal-Mart credit card, but now you’ve went out and purchased new patio furniture, some area rugs, and that new 70″ flat screen TV and now you owe $1500 with a $100 minimum payment, that could be enough to cause your file to have to go back to an underwriter for approval, or worse, your file could be denied.
   Hint: Don’t make any changes in the normal use of your credit cards and do NOT forget to make the minimum required payments.
4. Thou shalt not spend the money you have set aside for downpayment or closing costs.I mean, does this really need to be said?  Unfortunately, yes.  I’ve seen it happen.
   Hint: Your assets required for closing will be verified and scrutinized during the approval process.  Be prepared to explain and document large deposits that are not normal paycheck deposits.
5. Thou shalt not buy furniture, appliances, or household items before you buyer your new home.This goes a lot back to #3 and #4.  Sometimes even the slightest change in your assets or debt load could delay or derail your closing.
   Hint: You can do without that new bedroom suit or refrigerator for just a few more days…you’ve made it this long, right?
6. Thou shalt not originate or allow new inquiries on your credit report.As I explained on #3, your lender will likely re-check your credit the day of your closing.  Any and all new inquiries will have to be explained and sometimes even verified by the creditor themselves to prove in fact no new accounts were opened.  Sometimes you’ll need an inquiry to obtain homeowners insurance or possibly set up accounts with a local utility company or satellite provider, but these types are easily explained.  However, any inquiries associated with credit cards, automobiles, and especially mortgage inquires, must be explained.
   Hint: Be very cautious with any inquiries or be very prepared to delay your closing a few days.
7. Thou shalt not make any large OR ‘cash only’ deposits into your bank accounts or transfer money between accounts.I’ll continue that statement by adding “without first consulting your loan officer.”  Honestly, every lender has a different way of handling these types of non-payroll deposits.  Ours rule, for example, is anything over $500 that is not a direct deposit or payroll related must be explained, sourced, and documented.  And depositing cash is a NO-NO!  We will review at least the past 60 days of account history on your bank statements.  Let’s say you need $5000 to close.  But a week before the application, you deposited $800 worth of cash you had stuffed under your mattress at home.  It’s going to basically be impossible to source and verify where that money came from, so while you really have the money in your account, it will be deducted from the “available balance” that we use to approve your loan.  So now, you have to have $5800 in your account to get to the actual amount of $5000 after the $800 is deducted.  Coming up with even more additional money for closing may be tough.
   Hint: Cash is NOT king.
8. Thou shalt not change bank accounts.This is using the “less is more” approach.  Changing bank accounts require additional verification of not only the account the money is now in, but also the previous account the money may have been withdrawn from.  If the amounts to match up exactly from one to the other, it may spell trouble for your approval.
   Hint: This is getting redundant, I know…but just wait!
9. Thou shalt not co-sign for anyone, or allow authorized users to charge on your credit accounts.
   The quickest  thing that can delay or deny your loan approval will be changes in liabilities.  Just imagine, your 16 year old son is fired up about his new truck.  He has a local gas company credit card that he runs up $500 in gas in 2 weeks carting his friends around the city.  This can change your balances, your FICO score, and your minimum payment.
   Hint: Put everyone on notice that all credit cards are temporarily ‘canceled’ until you give them the ‘ok.’
10. Thou shalt not omit any debts or liabilities from your loan application.
    This is a major issue and could be viewed as mortgage fraud.  If convicted, you could face 30 years in prison and up to $1,000,000 in fines.
    Hint: The truth shall set you free.  Trust me, it’s not worth the alternative.

Breaking any one of these commandments could result in your loan being denied.  A good rule of thumb is to always notify your loan officer immediately if any of these issues come up during your loan application.  They can tell you how each broken commandment needs to be addressed.

Following these 10 Commandments will lead you to the promise land of LOAN APPROVAL!

If you have questions, please leave a comment below.  You can also contact me with any personal questions.

Mark@themortgagemark.com    www.themortgagemark.com