Now that you have run numbers and talked about financing options with your lender, you’re probably anxious to get started with house hunting. Before you do, and while you do, please keep the following in mind:
Your lender has prequalified you based on certain criteria which surely includes income, assets, credit score, and debt to income ratio. If your income, assets, or credit score goes down, or your debt goes up, it could jeopardize your loan plans. Loans may become more expensive to you or you may not qualify for them at all. So step lightly.
INCOME: When you preqalified with your lender, hopefully you were honest, and if you were unsure how much income you have that instead of guessing you just gave the lender your paystubs and evidence of that income and let him figure it out. If you were “puffing up” your income on your application please know that your lender will be verifying it before you get the loan, so that prequalification might not be helpful.
If you are changing jobs in any capacity, talk to your lender FIRST. Changing from a salaried position to one where most income is from bonuses or commissions, or to an independent contractor status can throw a wrench in the plan and may mean you have to wait two years or more before you can get a loan (because those jobs require 2 years worth of income history in many situations).
If you expect other changes which might decrease your income, let your lender know…. for example, this means if child support or alimony will not be received for much longer, or if you suddenly stop receiving these types of income. Once you are under contract, your lender will be collecting things like bank statements and court orders to verify that you are entitled to receive this income and also to verify you ARE receiving the income. Your ultimate goal is to get the loan, a prequalification does not mean everything has been approved.
CREDIT: No matter what, make your minimum payments on time, consistently. One forgotten bill could lower your credit score enough that your dreams of a new home will remain dreams and not become a reality. Do not increase credit lines or open new accounts. Do not close any accounts (yes, it’s OK to pay them off, but don’t cancel the lines of credit). Do not allow your debt to increase. If you have $1,000 on a credit card, don’t let it become $5,000 before the date of closing.
DEBT: This is covered above, but I need to reiterate, do NOT take on extra debt. Do not purchase a new car, buy your new furniture or borrow money from mom before you close on your new home.
ASSETS: More money in the bank is good, less is not. Don’t strip your savings to pay off your debt without talking to your lender first. Sometimes this can have a positive impact on your approval, sometimes negative. So please talk to your lender before making this move. Also, if you happen to have unexpected income, even gifts, remember to document what that is for…. your lender will probably ask. They need to make sure you’re not beefing up assets artificially to qualify for the loan, and that you are not relying on gift income or incurring debt. (ie If mom and dad want to pay off your credit card, have them pay off your credit card. DO NOT have them give you the money to pay off your credit card. If your parents give you $1K in cash for your birthday/graduation/etc, copy the check, and make sure you note that it is a “GIFT” on the check… your lender will be asking where the money came from, and might require documentation. If your job gives you a $400 a month reimbursement stipend for your car or telecommuting expenses then please make sure you can prove that is what it is for… likewise if there is a reimbursement. Murphy’s Law means they won’t ask for it until the day before closing, so you’re going to want to have all that info handy.)
Bottom line: When in doubt, ask your lender.
Loans today are not like loans you got years ago. If you’ve done this before you may be in for some unpleasant surprises about the questions and scrutiny that is headed your way. It’s worth it, since it’s usually the only way people are able to purchase homes today, but it’s not always fun. Remain flexible. Getting yourself frustrated over the process doesn’t make it easier.
As much as I dish out this advice, I am human too. The last time I refinanced my home I was shocked and dismayed and quite vocal about it when I got the checklist of the “stuff” I needed to locate to send to my lender. I wanted to yell, “I have been paying my mortgage payments on time for 20 years without exception. I am financing LESS this time, and have a great equity position and my payments are going DOWN. Just give me the darn loan.” But, I stopped myself. I reminded myself of the golden rule…
THE GOLDEN RULE: He who has the gold makes the rules. The lender has the gold. He makes the rules.
And once I accepted that fact, I was able to move forward quickly and more easily.
I don’t say any of this to scare you, in fact, I am hoping it will help you… help you avoid any unnecessary surprises and lots of frustration. Ultimately, my goal is to help you get into that new house. And I am ready to do just that.
Now, where shall we start?