The Haunted Loan Process
As we wind our way closer to Halloween, I wanted to cover a few of the graveyard variety hobgoblins of the mortgage process. You know, the things our clients don't tell us at the start and that later come back to haunt their home loan transaction like so many nightmares on Friday the 13th. The goal here is not to scare the prospective borrower, but instead to provide fair warning about the actions you can take or avoid at the start of your application that will help you close your loan on time and without undue stress. Let's peek-a-boo at some of the most common loan zombies that come out when the moon is full:
- Amending a tax return. It can be such an innocent mistake. You file a tax return and later amend it for some reason. When we ask you for your tax records, you provide us with your Forms 1040, but forget there is a 1040X out there as well. We order an IRS transcript (Form 4506T) and our numbers on the tax return don't match the numbers on the 4506T. Now, you're not in trouble with us or the IRS, but we do have to underwrite to the amended return.
- Beginning or not disclosing ongoing work on the property. Open walls, torn up flooring, room additions underway, no fixtures in a bathroom, an empty swimming pool, etc. This is not a complete list, of course, but always tell your lender if your home is in any way undergoing work (or will be) when an appraiser comes out. In general, you will not be able to fund your loan until all work is complete and a reinspection by the appraiser confirms such.
- Changing or leaving jobs, or giving notice. Expect that every lender will complete a prior-to-funding (PTF) verification of employment. If you are no longer on the job just before close, or if you've signaled your intent to leave the job, we may have a major issue. In short, the employment by which you qualify for the loan is the one that needs to be in place when you close.
- Co-signing on a debt for someone else. Most often, co-signed debts will show up on the credit report, but if they are new or unreported to the credit repositories, we often have to factor them into the debt ratio (DTI) at that time. The conventional wisdom is to never co-sign for anything. In reality, life is more complicated than that and it happens. Where it does, tell us up front.
- Disputing a credit item. It may seem like the right thing to do and it may make you feel better about sticking it to a creditor who's done you wrong, but disputing a credit item while in the loan process can take on a ghoulish character. The advice here is don't do it until we're funded, but at the bare minimum, let us know when you're thinking about it.
- Failing to disclose a property you own. Our borrowers often believe that if they own a property free and clear, there's no way we'd know about it (and more importantly, why would it matter?). But remember that real property ownership means there's county records and we can find those. And about the fact that it's free and clear? Good for you but it still doesn't address property taxes and insurance? Those go in your DTI too.
- Moving unsourced money into your bank accounts. This one has stopped more purchases of brick and mortar than Amazon. When you go to buy a home, know that we will look back at least two months (via bank statements) to confirm that all of the money for your down payment, closing costs and reserves is accounted for and meets guidelines. If you try to move money into your account, we will often question the deposit. So it's essential we identify, reveal and document how you plan to close the transaction when it comes to your money.
- Not making a mortgage payment when refinancing. "But I thought we would close by then..." Famous last words. Remember, when you are in the loan process, you are not done until you have keys in your hand or, in the case of a refinance, your new loan is funded and recorded and the old loan has been officially released. During that time, it's imperative you continue to make your regular mortgage payments. "If there is any doubt, there is no doubt," goes the old mountaineer's saying. Keep your existing mortgage current at all times.
- Recurring payments for a loan or other obligation. If you have undisclosed debts or payments and we see a recurring withdrawal from your bank accounts, expect that we will ask. If the item is discretionary, it's likely no issue, but if it is an obligation we will want to consider it in your debt ratio. The sooner we find out about it, the better. So let us know at the outset.
- Taking on new debt before closing escrow on your purchase. Early in my career I had a young, homebuying couple sign their loan documents on a Friday afternoon. Jubilant with their new purchase, they spent the weekend shopping for furniture and outfitting their new home, including opening a store credit card where they proceeded to take advantage of the new customer discount on their large purchases. On Monday, when confronted with the question of whether they took on any new obligations over the weekend, they said yes. Their rationale? "Oh, we closed when we signed on Friday." The lesson here is that it's not entirely their fault. Our industry can do a better job of explaining the closing process and when borrowers are "all clear." I learned a lot from that experience and have used the lessons ever since. On a purchase transaction, you are not closed until you are signed, funded and the deed is recorded with the county.
Look, some of the above may seem funny or obvious. But the reason I've listed them is because they happen. Over and over and over. We've dealt with each and if you find yourself in a bind as a result of any of them, don't hesitate to get in touch. We don't stand in judgment of how things happened and instead we focus on solutions. Let me know if I can be of service today.
Trick or treat,
Robert J. Spinosa
Vice President of Mortgage Lending
Marin Office: 324 Sir Francis Drake Blvd., San Anselmo, CA 94960
Berkeley Office: 1400 Shattuck Ave., Suite 1, Berkeley, CA 94709
*The views and opinions expressed on this site about work-related matters are my own, have not been reviewed or approved by Guaranteed Rate and do not necessarily represent the views and opinions of Guaranteed Rate. In no way do I commit Guaranteed Rate to any position on any matter or issue without the express prior written consent of Guaranteed Rate's Human Resources Department.
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