According to the Consumer Financial Protection Bureau’s 2020 report – 8.9% of conventional and nonconventional mortgage loans were denied in 2019. During the mortgage process there are several do’s and don’ts that can make or break an application. Below is a list of the most common, and potentially deal breaking mistakes you should avoid while in the process of obtaining a new mortgage loan.
Making major purchases using credit
One of the most important factors in the mortgage qualification process is your debt-to-income (DTI). A ratio of monthly obligations divided by monthly income is used to determine your DTI. Any increase in debt/spending can spike this ratio in a negative direction.
2. Not making a mortgage payment during a refinance.
When refinancing a property, it is important to continue making your regular mortgage payments, even if the mortgage is supposed to close before the payment is considered late. If there is an issue that delays the transaction and the payment ends up coming in 30 days late, not only will your credit score be damaged, but the refinance could fall apart.
3. Quitting/changing your job.
A major underwriting factor in most mortgages applications is predictable and stable income – changing your job in the middle of a mortgage transaction puts this requirement under fire. Additionally, changes in income can have unexpected effects on your mortgage application. Even if you get a raise, changes in pay structure can have a detrimental impact and potentially lead to an adverse action on your mortgage application.
4. Making cash transactions
Avoid depositing cash into your bank account – cash is an unsourceable assets and is considered unacceptable when applying for a mortgage. This means no cashing checks and depositing a all or a portion of that cash into your account, no gift from family members coming in the form of cash. Always make sure your incoming assets have a paper trail – deposit checks, gifts should be wired or checks – the underwriter will ask to source any large deposit in the last two months.
5. Slowly providing conditions
Financing contingencies and contract do expire. If this happens before your loan closes, your initial earnest money deposit can be lost. To avoid this risk, it is important to quickly provide conditions to your loan processor/loan officer. Even after the processing team is in receipt of all conditions it can take up to a week to close and fund your loan. Make sure never to wait until the last minute to provide requested documentation.
All these mistakes can be easily avoided, and it is important to stay transparent with your loan officer about all financial decisions you are making during the loan process. If you have more questions feel free to give us a call, we are happy to help.