Home Buying Do’s and Don’ts During the Application Process to Closing
Lenders like stable employment, income and assets, and preferably no increases to the debt load – at least during the loan application process. Keep the following specific things in mind for the three-month period prior to and during the loan application process.
- Do not quit or change jobs.
If you believe there is a possibility this will happen after the loan application and prior to the purchase closing, keep in mind it would result in denial of the loan, unless job change is in the same line of work. The case it would be acceptable only if underwriters receive and approve the new job offer-letter/contract, and the first paystub.
If you have recently become self-employed, keep in mind you will need two years history of self-employment to qualify for a mortgage.
Paying Bills and Credit Score
- Do pay your bills on time to maintain the best possible credit score.
- Do not pay any collection bills without consulting with your Loan Originator, since this would report as NEW activity on a derogatory trade line, and negatively impact your credit score.
Note that some lenders require payment of newer or large collections at the time of closing, but don’t do it unless specifically requested by the mortgage lender.
- Do not increase your debt (buying a new car or running up credit cards).
Keep your debt/credit-limit ratio under 30% on each credit card at all times – even if you pay 100% of the balance at end of the month. If you must make charges that will exceed 30% of your limit on any given card, try to spread the charges on multiple cards. This is to keep your credit FICO score as high as possible during the loan application process, since lenders may pull the score at any time during loan application to check on any changes.
New Loans and Applying for New Credit Cards
- Do not apply for credit regarding new credit cards, auto loans or lines of credit.
- Do not close any credit card accounts, but it is always okay to pay down any balance.
- Do not make “non-paycheck” deposits to any accounts listed on your loan application, unless you are able and willing to provide a paper trail documenting the source of funds proving they are your own (not a gift or borrowed funds).
Savings, Earnest Money, Bank Statements, and Transferring Money
- If you intend to use money from an account that is not your own, for settlement charges at closing, those funds will only be acceptable as a “gift” from a family member which requires a gift letter and bank statements showing transfer of funds from “donor’s” account to “borrower’s” (your) account.
Note that cash deposits are often required to be sourced and come from an acceptable source. In some cases, if you have large cash deposits on either of the two most recent bank statements we may not be able to use the account.
- Do increase your savings.
- Do provide a copy of the earnest money canceled checks.
These should be sent to Nationwide Mortgage & Realty, LLC as soon as they are available.
- Do keep copies of consecutive bank statements and income paystubs for the most recent, rolling two-month period.
Also keep handy W-2, 1099, and complete federal tax returns for the most recent two years.
Note that it is best to not transfer money around too much between financial accounts because underwriters need a paper trail for all large deposits, and it just becomes a lot of paper work to collect and send in. In other words, transferring large sums of money means you will need to provide bank statements (or transaction statements) for every large transfer.
- In some cases, you may not be able to use money from a business account.
In some cases, funds for down payment, settlement charges, and reserves must be from a personal account. If your personal account bank statement shows a transfer of funds from a business account to a personal account, those funds may not be acceptable since they came from a business account.
Documents Requested for Underwriting and Processing
In order to meet closing dates, please send documents to your Loan Originator in timely fashion.
- Please note, the underwriting of mortgage loans can be complicated and highly regulated by many new laws.
While we use our extensive experience and expertise to help you navigate the process and make it as easy as possible, please understand that mortgage lenders request a lot of detailed information about your employment, income, assets, and credit history. We anticipate as much of this information in advance as possible, but do not always know what additional things may be requested on any given loan. The requests for additional information often continue right up to the day of closing, but this has become a normal part of the process. You can help avoid delays by providing requested information within 24 hours.
- Verbal Verification of Employment is required by the underwriting department before closing to ensure you are still employed at the time of closing.
Please be sure we have accurate contact information for your employer and that they are available to take the phone call within those days.
Do let us know if they have been filed on time or if an extension was requested. Underwriters often require a transcript of tax returns from the IRS, which typically takes the IRS two to six weeks to have available after returns are filed. In some cases, a mortgage loan cannot be cleared to close (completed) until the tax return transcripts are available, so this is important for planning the closing date.
Changes to the Sales Contract
Do let us know about any changes to information in the contract ASAP. Changes such as closing date, purchase price, seller credits, etc., must be communicated to the lender ASAP as many changes require an addendum to the contract, signed by Buyer and Seller, and submitted to the lender for approval.
- A seller credit is an example.
Appraisal Management Companies (AMC) can take up to a week to process any changes, which could affect the closing date if the change is submitted to the lender within a week of the closing.
Do not pack away documents that may be needed for mortgage underwriting.
- Photo ID, passport, social security cards, insurance cards/statements, etc.
- Financial statements (bank statements for the last 12 months, W-2, tax returns for the last two years, etc).
- Real estate related documents for real estate you own.
- Property insurance, homeowner’s association statements, condo/townhome assessments, mortgage statements, etc.
Do collect and send to Nationwide Mortgage & Realty, LLC the following documents/information as soon as possible, to stream-line the mortgage process.
This way, when you find your new home we will have everything needed to submit a loan application, and need just updated bank statements and pay stubs: we prefer PDF copies of documents, but will accept hard copies if needed.
- Most recent pay stubs covering one full month.
- Last two years W-2 (or equivalent income on 1099).
- Last two years federal tax returns with all schedules.
- Bank statements (all pages, even if blank) for the past 2 months for all accounts that will be used for the down payment, settlement charges and reserves.
- Name and telephone number of agent for homeowner’s insurance.
You must purchase insurance prior to closing, preferably at time of loan application, or shortly thereafter.
- Name, telephone number, and email of your realtor and attorney.
Real Estate Owned
- Mortgage statements.
- Property tax statement.
- Condo assessment statement, if applicable.
- Leases for rental units, if applicable
If you want property held in a trust, we need to know that ASAP to get the required lender approval.
If you have any questions or concerns about anything that can delay the loan process, ask your Loan Originator.