You saw the house, made and offer, got your inspection done and were on your way to getting the home you truly wanted. Then…
Buying a house can be exciting, but being denied for your mortgage can be extremely stressful and to say the last disappointing. You can’t control everything although there some things that you can do to avoid being denied.
Takes these to be prepared and avoid the missteps that will make the deal fall apart.
1 Be sure that you have enough for the down payment
Unless you are buying with VA or USDA loan you will need a down payment. There is just no way around it. There are programs like FHA that require as little as 3.5% down and some conventional financing with as little as 5% down. Be sure that you know the program you will be using and how much it will require. Use that to determine the amount you need based on the purchase price of the house
2 Your job status changed
Changing jobs during the loan process could be a deal killer. They want to see that you have at least 2 years of stable employment. A change in jobs could mean that all ends. Although there could be circumstances that override that. For example if your job is in a field where your skills are in high demand and there is a lack of people to fill them. Think doctor.
Your lender will verify employment before closing. If they call and find out that you no longer work there they will stop the funding instantly. Even if is the day before closing.
3 Recently opened a new account
This is the easiest thing you can control. If you haven’t closed on the house don’t open anything else. This means a credit card, car loan, nothing that reports to the credit bureaus. This will change your debt to income ratio and could cause you to not be able to qualify.
There are a few things to keep in mind with debt to income ratios. Try not to add any new accounts for 6 months before applying for your mortgage. Keep the total amount of monthly debts including the new mortgage payment to 40% or less of the amount of income you bring in monthly.
4 Don’t move money around
The bank wanted to see at least the last two months of bank statements from you. They want to verify that the funds add up to what you need to have for the funds for closing and as a verification of the money you have coming into you.
If you start moving money around that raises questions. If you move any money keep it to under $1,000. Also remember that you don’t need to have all your funds in one account for closing. If you have 3 accounts you can get 3 cashiers checks for closing or wire the money. Just check with your bank and closing company before closing day.
5 Avoid late payments
If you get busy and forget to make a payment and 30 days go by a late payment will show on your credit report. Just one last payment will lower your credit score and ding your credit for a while.
If it does happen you will want to put some time between the late payment and applying for the mortgage. It should be at least 6 months and preferably 12 months.
This is by no means all the potential issues that could come up. The best thing you can do it contact a lender at about a year before applying. Ask them what pitfalls you need to know about and have them take a look at your situation. They may be able to work around some issues. Just be sure that you won’t be paying for in fees or in your rate to make up for other issues.