The information provided on this website does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only. Information on this website may not be current. This website may contain links to other third-party websites. Such links are only for the convenience of the reader, user or browser; we do not recommend or endorse the contents of any third-party sites. Readers of this website should contact their attorney, accountant or credit counselor to obtain advice with respect to their particular situation. No reader, user, or browser of this site should act or not act on the basis of information on this site. Always seek personal legal, financial or credit advice for your relevant jurisdiction. Only your individual attorney or advisor can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Use of, and access to, this website or any of the links or resources contained within the site do not create an attorney-client or fiduciary relationship between the reader, user, or browser and website owner, authors, contributors, contributing firms, or their respective employers.
Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them. Compensation is not a factor in the substantive evaluation of any product.
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.
“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.”
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.
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.
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 view two of your credit scores, updated every 14 days, for free on Credit.com.) You can learn more about why it’s important to check your credit before buying a home here.
Image: monkeybusinessimages
December 13, 2023
Mortgages