Here are some helpful hints of what to do and what not to do when buying your new home:
#1: DO GET PREQUALIFIED.
Although you may be months or even years away from buying a home you should get pre-qualified as soon as possible. A pre-qualification is usually good for 60 days however going through the process will allow you to discover any red flags that could potentially cause you problems down the road (credit issues, down payment, reserves).
#2: DO GET TOGETHER A COMPLETE APPLICATION PACKAGE.
You will be provided with a list of items needed for a mortgage loan application. Make sure to collect all of the requested information as it will greatly expedite the process. Make sure you have all pages of bank statements, tax returns, etc. Cover pages and screen shots will not be accepted by most lenders and will only cause delays.
#3: DO START SAVING NOW!!!
Open a separate account at least 60 days prior to applying for a loan and place your down payment fund in it. You will be asked to show 60 days’ worth of statements on any account you have, the cleaner and clearer you can make your finances look to an underwriter the better the process will go. In addition to whatever down payment you will be making, loan underwriters will be looking to make sure that you have at least 2 month of payments in reserves.
#4: DO STAY CURRENT ON EXISTING ACCOUNTS.
Late payments on your existing mortgage, car payment, or anything else that can be reported to a CRA (Credit Reporting Agency) can cost you dearly. One 30-day late payment can lower your credit score by 30-75 points. Make your mortgage payments on time and if you are refinancing call us before you make any payments that are scheduled within two weeks of closing. Make sure to keep making payments on accounts even if they are in dispute, you don’t want any negative items showing on your credit report.
#5: DO CONTINUE TO USE YOUR CREDIT AS YOUR NORMALLY WOULD.
Red flags are easily raised within the scoring system. If it appears you are diverting from your normal spending patterns, it could cause your score to go down. For example, if you’ve had a monthly service for internet access billed to the same credit card for the past three years, there’s really no reason to drop it now. Again, make your changes after the loan closes.
#6: DO CALL YOUR LOAN CONSULTANT
If you have any questions before and during the loan process about any credit issues, changes, down payments, your loan consultant is there to help you.
#1: DON’T APPLY FOR NEW CREDIT OF ANY KIND.
If you receive invitations to apply for new lines of credit, don’t respond. If you do, that company will pull your credit report and this will have an adverse effect on your credit score. Likewise, don’t establish or increase lines of credit for furniture, appliances, computers, cars, etc. Expect that you will have to explain in writing any inquiries that appear on your credit report within 90 days of your mortgage application date.
#2: DON’T MAX OUT EXISTING CREDIT CARDS.
Running up your credit cards is the fastest way to bring your score down and it could drop up to 100 points overnight. Try to keep your credit card balances below 30% of the available limit, this will have the most positive effect on increasing your credit score.
#3:DON’T CONSOLIDATE DEBT TO ONE OR TWO CARDS.
Once again, do not change the ratio of debt to available credit. Likewise, you want to keep active beneficial credit history on your record.
#4: DON’T CLOSE CREDIT CARD ACCOUNTS.
If you close a credit card account, it can affect your ratio of debt to available credit which has a 30% impact on your credit score. If you really want to close an account, do it after you close your mortgage loan.
#5: DON’T RAISE RED FLAGS TO THE UNDERWRITER.
Don’t co-sign on another person’s loan, or change your name and address. The less activity that occurs while your loan is in process the better it is for you and the less you have to explain.
#6: DON’T MAKE ANY ADJUSTMENTS OR TRANSFERS IN YOUR ASSET PICTURE.
Don’t transfer large amounts of funds or make substantial changes to your asset picture without making sure that you have the ability to show a paper trail of exactly what is happening. Any deposit amounts over $500 that are other than your normal deposits will be questioned by an underwriter unless the deposit is a documented gift. Ask your lender about the appropriate way to document gifts.
#7: DON’T MAKE CHANGES WITH YOUR EMPLOYMENT OR INCOME.
Employment stability is a big factor in the underwriting loan process. Quitting or changing jobs can greatly endanger your entire loan approval; remember underwriters are looking for stability. Be sure to notify your lender of any changes to your job or income.
Information provided by Lynne Billac, VP Mortgage Loan Origination Mountain Region, Community Banks of Colorado