It will not be the first time that a buyer accidentally disqualifies their loan before closing! Often we hear of buyers going out and buying furniture or something else on credit, or a new car before closing, or they change jobs or change positions, which unfortunately will now disqualify their loan before closing. These mistakes will happen and will continue to happen if buyers are not being coached properly before or during the loan process until they close escrow. Here are the 8 most common mistakes that buyers make which may accidentally disqualify their loan before closing.
The 8 Most Common Mistakes Buyers Make
- 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.
WARNING: The Lender Will Pull Your Credit Again Before Closing
It is also important that buyers are aware of a Rule that requires lenders to re-pull a buyers 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.
Lenders advise this ensures loans are priced properly and are funded on the borrower’s credit risk at closing as opposed to at application; because a lot can change with a buyers profile while a loan is in-process during a 30 or 60 day escrow.
Some of the things underwriters are looking for include:
* 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?
Each of the above is a red flag to underwriting, so it is important that buyers are aware of this rule and are being coached properly during escrow in regards to their credit. A golden rule for buyers to follow is, they should NOT purchase anything on credit until AFTER closing!
It's Important to Coach Buyers Right Through Until Closing
A good idea is to give a buyer a list of Do's and Don'ts that they should follow and keep handy until they close escrow. See below a DO's and DON'Ts list that I hand out to all my buyers when they start the initial loan application, and I tell them to stick this on the fridge until they close escrow, as this list will serve as a reminder and ensure no mistakes will be made and everyone will have a smooth closing.
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Make sure your buyer is being coached properly until the close of escrow, and they have a list of items of items they must follow between the date of application and date of closing. I continue to hear horror stories from my underwriters and friends in the industry, of buyers going out and buying furniture or something else on credit, or a new car before closing, and suddenly this new debt will cause their credit scores to drop, or their debt to income ratios are now too high, which means they do not qualify for the loan anymore. Therefore, a golden rule for buyers to follow is, they should NOT purchase anything on credit until AFTER closing!
f you have any questions, or you would like a copy of this Do's and Don'ts sheet above, please feel free to contact me directly at 858-200-9602 or by email at mdeery@citywidefinacialcorp.com
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