Do’s and Don’ts of the Loan Process
Many variables come into play when you begin the loan process, and understanding the do’s and don’ts can make the difference between a lender approving or rejecting your home loan. Take a look at these simple loan process do’s and don’ts.
DO:
- Keep all records in good order.
Keep your financial records close at hand in case the lender asks for these. Be aware that underwriters typically verify your income and tax documents through your employer(s), CPA, and IRS tax transcripts.
- Hold onto new paystubs as received.
Continue saving incoming account statements. Keep all numbered pages of each bank statement. (i.e., 8 of 8).
- Gifts from Relatives
If you receive any gift money from relatives, they need to sign a gift letter provided by the lender and provide an account statement proving the source. These funds must be “seasoned.”
What do “seasoned” funds mean and how do you provide evidence to the lender?
- The donor needs to sign a gift letter provided by the lender which states that the funds gifted to the home buyers are a gift and not a loan and that the gift funds will not be paid back to the donor.
- The borrower needs to make a copy of the check received by the donor and provide copies of the deposit slip and an updated bank statement after the deposit of the check from the donor of the gift funds.
- The donor needs to provide 30 days of bank statements showing that the gift funds have been seasoned for at least 30 days. It needs to show gifted funds being withdrawn from their account and deposited to the home buyer’s bank account.
- Current Residence
Are you renting? Continue paying your rent on time and save proof of payment. If your current residence is up for sale, prepare to show your Closing Disclosure.
If you plan to rent your home, you may need to show sufficient equity, a lease, and receipt of the first month’s rent and security deposit.
- Keep your credit shining.
Continue making payments on time. Negative changes could cause you to lose your approval and your dream home.
- Understand that things have changed.
Underwriters require more documentation than in the past. Even if requests seem silly, intrusive, or unnecessary, please remember that if they do not need it, they will not ask.
DON’T:
- Apply for new credit.
Changes in your credit can change the terms of your loan, cause delays, and even prevent you from closing.
If you must open a new account (or even borrow against retirement funds), please consult with your mortgage broker first.
- Change jobs during the process.
Probationary periods, career, or even status changes can be subject to strict rules. Any changes in your salary or career status (such as from a salaried to a commissioned position, leave of absence, or new bonus structure) can impact your loan.
- Make undocumented deposits.
You must identify the source of large deposits, and sometimes even small ones. Make copies of checks and deposit slips. Keep your deposits small and separate. Avoid depositing cash.
- Wait to liquidate funds from stock or retirement accounts.
If you need to sell investments, do it now and document the transaction. Don’t take the risk that the market could move against you and leave you short of funds to close.
THE MOST IMPORTANT TIP:
Never be afraid to ask questions. Before you buy, let us walk you through the loan process.
What questions do you have for our team? Send them here!