The process of escrow and obtaining your loan can take several months. It is vital during this time to present a solid-citizen picture to the lending institution from whom you are getting a large amount of money. Don’t ever underestimate what this means for the lender. If you imagine the Underwriter sitting in her cubicle on a case of dynamite, you will have a good idea about their suspicious nature and temperament.
For this reason, you do not want to be changing jobs in the middle of the process. The Underwriter requires proof that you have been in the same job for two years unless there is a logical pattern to your activities in which a change fits. For example, even though you were not a Welder for the past two years, if you came out of the Simpson’s Welding and Braising College a year ago, it makes sense. So plan on staying with your current employer until you close escrow. Underwriters very often will do a VOE (verification of employment) the day before funding the loan to make sure you are still employed.
Second, you will need funds to obtain the home. Funds for your down payment and for your closing costs. You will also need to show reserve funds in your checking, savings, IRAs or 401-Ks. That way if you are disabled or laid off, you will be able to survive for a few months. The bank wants to know that you can make your payments even if the worst should happen. Now these funds need to be yours. A deposit for $10,000 can’t just show up in your account for no particular reason.
If you are selling a vehicle to raise the funds, you will need to show proof of ownership, then a bill of sale. Should you be obtaining money from a friend or member of the family the lender will want to know if this is a loan. Because, if you are required to make payments, then they will have to count that in your debts to see if you still qualify. So have your benefactor write what is called a Gift Letter. This testifies that they do not expect you to pay the money back to them; that the funds are a gift.
Make all non-payroll related deposits to your accounts as virgins. In other words, do not take the check from Aunt Clorise and deposit it with your tax refund. Make one deposit at $10,000 and a separate one at $2,169, not one big one for $12,169. Don’t take cash back on the Aunt Clorise gift and show a deposit of $9,900. This makes it difficult for the Underwriter to correlate the Gift Letter and the deposit amount.
And, this seems silly; you can have everything done, approved, loan documents signed and ready to close. Then here comes your final bank statement and there are bounced checks on it. You may have gotten so crazy from all this chaos in your life that you forgot to make a deposit or failed to write in a debit card payment and booooommm NSFs all over your statement. Guess what, everything goes on hold until you can explain. So, don’t bounce any checks. Well, you shouldn’t bounce any checks anyway, but this is a particularly bad time to have that kind of thing showing up on your Bank Statement. The Underwriter is likely to say, “They can’t even afford to live on what they make now.” Be very careful during this time. Underwriters may also ask for the last Bank Statement just days before the close of escrow.
Here is a list of the things you will be tempted to buy before the close of escrow. DON’T. No matter how good the sale is. Furniture, appliances, trees, rugs, window treatments, upgrade flooring, paint, cabinets, landscaping materials, concrete work, etc. You need to keep your money handy. It would be silly to have paid $3,000 for a new patio when this causes your loan to fail. You now own a $3,000 patio and have no home to install it on. Credit cards are the biggest trap. Trust me, the Underwriter will know. Don’t put anything on your credit card until escrow closes.
Story - I had a client that had ratios of 28/39 and was fully approved for his loan. At the last minute the Underwriter pulled his scores again and they came in at 28/1512. I called to ask what happened. He owned a rental car company and had gotten a great deal on some new cars that he bought on credit. He lost the house.
Don’t’ change banks. Not even if they are giving away free toasters.
Don’t buy a car, take out a student loan, apply for new credit cards, open a charge account at a store, or even apply for a charge account at a store. Don’t even go into a store if you can help it. Keep focused on your goal of home ownership. You will have plenty of time for all the rest of that after you move in. Close escrow then go shopping.
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