Our underwriters have been warning us about an increase in borrowers who are accidentally disqualifying their loan before funding. For example, they advise that borrowers are going out and buying furniture on credit or a new car before closing, or they change jobs, which unfortunately may now disqualify their loan before closing. These mistakes will happen and will continue to happen, if borrowers are not being coached properly before or during the loan process, until they close escrow. Here are the 9 most common mistakes that borrowers make, which may accidentally disqualify their loan before their loan funds.
The 9 Most Common Mistakes Borrowers Make
I have seen each of these happen at one time or another on a loan over the years. For example, just recently we had a borrower who went on disability right after she got into contract on a home and never told her agent or I. We only found out about this two weeks into the transaction when we requested an updated paystub. The borrower assumed it would not be an issue as she was still getting paid by the state. Unfortunately a lender cannot fund a loan until a borrowers is back at work earning their regular salary.
Here are 9 of the most common mistakes that borrowers make, which may accidentally disqualify their loan before closing.
- Don’t buy a new car or trade-up to a bigger lease.
- Don’t quit your job to change industries or start a new company.
- Don’t switch from a salaried job to a heavily-commissioned job.
- Don’t transfer large sums of money between bank accounts.
- Don’t forget to pay your bills — even the ones in dispute.
- Don’t open new credit cards — even if you’re getting 20% off.
- Don’t accept a cash gift without filing the proper “gift” paperwork
- Don’t make random, undocumented deposits into your bank account.
- Don’t co-sign on any debt with anyone (*you will be 100% responsible for the payments).
WARNING: The Lender Will Pull Your Credit Again Before Closing
It is also important that borrowers are aware of a rule, that requires a lender to re-pull their credit report just prior to closing and to look for any changes. If the “final” credit report doesn’t match the original credit report, the mortgage may be subject to a complete re-underwrite and, in a worst case scenario, a loan application denial.
This ensures a loan is priced properly and is funded on the borrower’s credit risk at closing, as opposed to at application; because a lot can change with a borrowers profile while a loan is in-process during a 30-45 day period.
Some of the things underwriters are looking for when they re-pull your credit:
- Did you apply for new credit cards while your loan was in-process?
- Did you run up existing cards while your loan was in-process?
- Did you finance an automobile while your loan was in-process?
- Did you make some other major purchase while your loan was in-process?
- Did you add non-disclosed debts while your loan was in-process?
- Did you co-sign on any debt with anyone?
Each of the above is a red flag to underwriting, so it is very important that borrowers are aware their credit will be reviewed again before the loan funds. A golden rule for borrowers to follow is, they should NOT purchase anything on credit until AFTER the loan funds.
A List of Do’s and Don’ts to Follow Until Your Loan Closes
Here is a Do’s and Don’ts list that I put together below, that borrowers should follow until their loan funds. It is a good idea to print this out and keep it handy, as this list will serve as a reminder and ensure no mistakes will be made and you will have a smooth loan closing.
It’s Important to Manage Your Credit Until Your Loan Funds
It’s important that borrowers today are being coached properly until their loan funds, and they have a checklist of rules to follow from the initial date of their loan application, until the loan funds, otherwise mistakes will happen.
I continue to hear horror stories from my underwriters and friends in the industry, of borrowers going out and buying furniture or a new car on credit, or switching jobs or going on disability, which means they do not qualify for the loan anymore.
Therefore, a golden rule for borrowers to follow is, they should NOT purchase anything on credit until AFTER their loan funds, and if they have any changes in employment or any other questions they are concerned about, they need to bring them up immediately so we can provide a solution.
If you have any questions, or you would like a copy of this Do’s and Don’ts list above, please feel free to contact me directly at 858-442-2686 or by email at firstname.lastname@example.org and I can send you a copy.