It seemed like a good idea at the time...buyer mistakes that affect closings -

Buyers using financing sometimes do things that jeopardize their own approvals and closings -

Applying for financing on a home purchase, buyers want to present themselves to lenders in the best possible light. Yet some of them undermine their applications and approvals by doing things they didn't even know were mistakes.

When they do, their approval could be reversed at the last minute, causing the deal to fall apart right before closing. Good Loan Originators guide buyers all the way to closing, helping them sidestep the mistakes we're discussing today.

Just about all buyers know that when preparing to apply for mortgage financing, they should:

- Gather supporting paperwork

- Make sure their credit is in good shape

- Save / transfer down payment and closing money

However, many (if not most) have no idea that there are also

things they should absolutely NOT do just before, during, and after applying for a mortgage.

- Do not change jobs, quit a job, or start a business

Lenders like to see steady employment and verifiable income. Doing any of these things can at the very least require a letter of explanation, and could even entirely disqualify the applicant.

- Do not co-sign a loan or lease for anyone

When a person co-signs for someone else, he or she is accepting the responsibility and liability for repaying that loan.

This liability (debt) must be included in the DTI (Debt-To-Income) calculations when the co-signer applies for a loan in his or her own name. Added debt may push the DTI beyond an allowable ratio.

- Do not finance a large purchase like a car or a boat.

Anything added to a borrower's total debt will affect the DTI.

Car and boat loan payments affect it significantly because they are usually higher than monthly credit card payments. This added debt could put him or her over the limits for qualifying.

Remember also that each application for new credit generates an inquiry into that person's credit report. Each inquiry can reduce the credit score by up to 8 points.

Since credit scores are an important factor in determining a buyer's mortgage interest rate, a drop in the score can result in a higher interest rate.

Important: This also applies to a car lease! Monthly lease payments are counted in the DTI calculation.

- Do not allow credit card balances to creep up

(and don't apply for new credit cards either)

Lenders prefer to see credit card balances less than about 30% of their maximum limits - the lower, the better. This applies to getting credit ready for evaluation as well as after approval yet before closing.

Borrowers may not realize that lenders pull an updated credit
report just before closing to make sure everything is still
within underwriting guidelines.

"Maxing out" credit card accounts after approval but before
closing can result in a reversal of that approval.

- Do not buy new furniture, appliances, or other new home

items on credit

Many buyers can't resist starting to buy furniture, appliances, and other new house goodies once they receive loan approval.

As we mentioned above, lenders pull another pre-closing credit report and review. Even if the purchase is a "one year with

no payments" type arrangement, it will still show up as a debt when credit is pulled, and the projected minimum monthly payment will have to be counted in the DTI calculation.

Wait until after settlement to budget for these larger household purchases.

- Do not make large bank deposits or transfers without

full documentation and a "paper trail"

Remember that funds for down payment and closing costs

need to be sourced prior to closing. This means that lenders
want to see the account statements for where the money was held before the house purchase.

When transferring money from one account to another, borrowers must create a "paper trail" to show the lender. If down payment and closing money come from gifts, bonuses, the sale of assets, or sources other than the borrower's regular paycheck and savings, letters of explanation are required.

These requirements will keep getting stricter due to Federal Regulations such as the Patriot Act, Bank Secrecy Act, and Anti-Money Laundering legislation.

Basically, borrowers shouldn't be doing anything that would compromise, contradict, or raise questions about what they've already entered on the application and supported with documentation.

Yes - all of these missteps we've discussed today have been committed by buyers, with these worst-case effects:

Before final approval, they showed up on the application / credit report - and the application was denied if DTI was too high.

After approval though before closing,

the deal fell apart when initial approval was reversed.

Before closing and after a financing contingency expired,

buyers lost purchase financing along with deposits

and money paid for inspections, appraisals, and surveys.

And with the new RESPA-TILA Integrated Disclosures now in effect, these buyer missteps can lead to those Changed Circumstances that mean re-disclosure and a new mandatory

3-day waiting period.

Check out the Newsletter Archives for further discussion on the new Integrated Disclosures.

Together with evaluating buyers' income, assets, credit, and debts, my PreApprovals include an open discussion with them about what we've discussed in today's newsletter.

It's up to us to think a few steps ahead, keep clients' best interests as a priority, and ensure that the deal stays together.

Call me when you have buyers who want to use financing so I can give them the information they need to make informed decisions and keep moving forward.

When they are properly guided through the steps from PreApproval all the way to closing, and made aware of these

missteps we've just discussed, we all arrive at the closing table on time and without unnecessary stress.

Let me reinforce the trust

your buyer has placed in you! sm