Lender Approval & Mistakes To Avoid
For buyers, especially first-time buyers, the lending process is commonly the most daunting. Our first recommendation to any stage buyer is to source out a reputable, reliable, communicative lender. Remember, you can shop lenders much like you shop the housing market for a home! All lenders carry different loan packages, different interest rates, and so on, which directly affect the loan packages they can offer you. Sit down with your lender- be honest, inquisitive, and listen. Discuss your lifestyle, debts, reserve funds.
We advise buyers to become Pre-Approved before home shopping. This is not to be confused with Pre-Qualification. Pre-Qualification is a basic idea of what you can afford, not a set amount, nor a full picture. Whereas, Pre-Approval is a specific loan amount for which you've been approved (barring no major changes). Pre-Approval may require an additional day or two, along with additional documents, but the extra step confirms what you can afford. Becoming Pre-Approved narrows your shopping window, thus ensuring you don’t fall in love with a home that’s out of the realm of possibility.
What will you have to provide? Most lenders will ask for the following documents: Address, Proof of Income (often two years W2 forms), Tax Returns, Employment Verification, Proof of Assets, Copies of Bank Statements, and List of Debts. They will pull your credit report to evaluate your loan-worthiness. Keep in mind pre-approval and interest rates offered do expire. They're usually good for 30-60 days. Beyond that, statements and information will need to be updated.
Once you’ve become Pre-Approved and are under contract on a home, how do you stay in their good graces, maintaining a good standing as a reliable home-buyer? Here are our top six mistakes to avoid:
falling behind on bills
Pay all bills on time and make sure you don't have an overdraft on any account. Regular, timely payments displays accountability to lenders.
making large purchases
Superflous, nonessential purchases such as new cars, furniture, vacations & shopping sprees demonstrate poor spending habits. In the months leading up to pre-approval and the period while under contract, limit spending to items of essential need. This is the time to button up and kick-in savings mode.
paying off all your debt
Your mortgage lender pre-approved you with a particular credit profile and credit score that accompanies your loan application file. This includes regular debt payments on items such as cars, student loans, or even a current mortgage. Making regular payments on your debts, and keeping the same profile is recommended, as substantial changes not only affect cash on hand, but your credit profile and interest rate. If ridding yourself of such debts is important to you, do so 6-12 months before pre-approval and spend the remaining time building up your cash reserves.
making large deposits or spending reserve funds
Large deposits, other than monthly income, will more than likely need to be sourced, and depending on where it came from could put a wrench in the process. What about cash gifts, you may ask? It is common for family or friends to want to help, especially first time home buyers. Some loan programs allow for down-payment gifts from family members. If a large cash gift is given to you it is best to disclose it to your lender. In fact, we recommend talking to your lender first. It’s equally vital that your savings account remain stable, if not growing during the home buying process.
changing banks or consigning a loan
Most lenders request your bank statements for the last two months when you apply for a home loan. This is to verify you have the funds needed for a down payment and closing costs, as well as evaluate your financial capabilities. The lender will also want to see that your assets have been sourced and seasoned (in your account for a set period of time). Avoid taking on additional loans or opening new accounts as it could throw a kink in your approval. Should a new bank account be necessary, contact your lender to discuss.
changing jobs, quitting or becoming self employed
As we've mentioned, lenders pre-approve you based on a particular profile. Changing jobs, or striking out on your own, will require them to reassess your loan-ability. Lenders often have a different set of standards altogether for those who are self-employed.
