Getting A Mortgage? Freeze, Don’t Move!

I have had far too many transactions blow up completely or get delayed because the client makes a financial move that they should not during the transaction. Mortgage borrowers should keep all finances static for the two months prior to buying, as well as during the transaction. Consult your loan officer before ANY financial changes. Do not take a new job, do not transfer money around, do not sell your vintage guitar collection during the transaction and deposit the money, do not run up your credit cards after loan approval and start buying furniture, do not get a gift for a vacation thinking the underwriter will not care since its not related to the loan, do not lease a new car, do not apply for new credit cards, just FREEZE! Even the seemingly most minor things can throw off debt ratios, or can get caught after loan approval and before settlement and cause more paperwork, delays, and potentially a loan rejection.

Some real life examples are:

I had clients who assumed they were in the clear after loan approval, and ran up their credit cards to the tune of $20,000 buying furniture for their new place. And one recent bill went unnoticed, a $282 Mattress Discounters bill, and Mattress Discounters immediately sent notice to the credit bureaus for the non-payment. Fannie Mae requires lenders pull a credit report just prior to settlement and all this showed up, more on this here. The large increase in credit card charges affected their debt ratios, and the collection notice pushed that person’s credit score to the point that they would have had to pay an extra $11,000 in discount points and double the PMI. We fixed it, by dropping the offending person off of the loan application, and luckily the one person remaining qualified on his or her own. As you can imagine, this created some last minute paperwork headache and a lot of drama.

And the most common problem I have had is clients who have moved money around or sold things and deposited the cash, and we have to go through an enormous amount of paperwork hassle documenting the source of deposits we see on bank statements. Even small deposits are included in this paper trail mess. More on this here, here and here.

Making changes to your credit and assets are the most common problems. But I have even seen clients make major job changes during a mortgage application, like quitting a job or retiring! I have even seen a client buy other property during our transaction! And much more. Do nothing financial for at least several months before applying for a mortgage, and certainly do nothing during the transaction all the way up until the day after settlement! And if you must consider some financial change, please consult your mortgage loan officer before doing so.