The Last Minute Credit Check
Did You Know?
Your mortgage lender may run a second credit report just prior to closing. Red flags that appear in this credit report can disqualify you for the mortgage loan.
Your actions after receiving lender approval for a mortgage loan can disqualify you for the loan. A mortgage loan is conditionally approved, with the lender reserving the right to re-verify credit, income, assets and employment at anytime. The lender may cancel the loan if there are any adverse changes to your qualification status. We have heard too many times "I didn't think that would matter."
Your debt-to-income ratio is your gross monthly income divided by the amount you spend on debt. Debt items include mortgage payments (including principal, interest, insurance, tax), car payments, credit card payments, student loans, child support payments, etc.
The lender considers debt-to-income ratio when approving you for a mortgage loan. Only 28* percent of your income can be used for your mortgage payment, which includes taxes and insurance; and 36* percent for the mortgage payment plus the rest of your debt. Anything you do to negatively affect your debt-to-income ratio may change an "approval" to a "disqualification."
* depending on the type of loan you are qualifying for
Avoid Red Flags
A red flag is any inquiry made regarding your credit worthiness. If you decide to purchase a big ticket item - like a car, boat or furniture - prior to closing, you are at risk of having a red flag show up on your credit report. Simply put, do NOT make any big ticket purchases after qualifying for a loan. We have personally seen this happen in the past and it is not pretty when everything is set to close and then lender either withdraws their loan, requires a larger down payment or requires the additional purchases be paid off.
True Story: Buyer placed an offer on their Dream Home and it was accepted. Their loan application was accepted and they were waiting out their days until the closing. They were so excited they went out to select new furniture for their new home. They knew they should not "buy" anything so they just went looking. The salesman explained this particular sale was for this weekend only. To put the furniture they picked out on hold, the store needed to run their credit to ensure they would be able to purchase. They negotiated a delivery time and thought all was good. Just prior to closing their lender ran their credit again. Seeing the credit line opened at the furniture store, the lender re-ran their debt to income ratios. They received notification that they were no longer qualified to purchase the home. The buyers had to jump through hoops, closing the furniture account and writing a letter explaining that no additional debt had been taken. It cost them an extra week and a lot of frustration.
Please do not change your financial situation at all. Pay all debts on time and do not take on any new debt.
Keep Your Money Where It Is
The balances of your liquid assets are considered when approving you for a mortgage loan. These liquid assets may include checking accounts, savings accounts, certificates of deposit, money market accounts, retirement accounts, stock and mutual funds.
Avoid changes to the balances of these accounts. Do not close accounts. Do not change banks. A large withdrawal or deposit to any of these accounts will trigger a red flag for your mortgage lender. If a red flag is triggered, you may be asked to produce a paper trail tracking large withdrawals and/or deposits. Sometimes the lender will even ask you to include in the paperwork "why" you moved your money. None of this will be needed if you leave your money where it is. If you absolutely feel you must move money, please check with either us or your mortgage broker, or both, before doing it.
The best rule of thumb is to not change jobs during the process of buying a home. If you absolutely have to change jobs then we will need to prepare the lender for this. When presented to your lender the right way, everything will most likely be smooth. There will be additional paperwork needed and most likely a delay in the approval process. However, sales people should not change jobs prior to closing on their mortgage loan.
If your income is strictly salary than you should not have a problem changing to another job of equal or greater income. If, however, your income includes salary and bonuses, commissions and/or overtime, you should not change jobs prior to closing.
If your income is based solely on a 40-hour work week without overtime, then changing to a job with equal or greater hourly pay should not be a problem. However, if your income is dependent upon overtime pay, do not change jobs prior to closing.
If your income is from commission or a substantial portion of your income is from commission, then you should not change jobs prior to closing. Typically, mortgage lenders average your commissions over the last two year period to determine income. Changing employers eliminates the two-year commission history and places uncertainty on your income status.
Talk to Your Loan Originator
Do not make any changes to your financial and employment status without first talking to your loan originator. We can not stress this enough.