The Mortgage Murder

“You did WHAT before closing day?!?”

Here’s a list of things that can KILL YOUR MORTGAGE LOAN APPROVAL:

1)  Car shopping- “BIG NO-NO!” Once you have a mortgage pre-approval, it’s not a good idea to shop for a sports car.

• The credit check alone can “ding” your credit score.  Let’s say you need a 620 FICO (credit) score to qualify for your mortgage, and your score is 621.  Once the car dealer runs your credit, your score will drop, and you will no longer qualify for your mortgage.  Whether you’re approved for the car loan or not… the credit check will count against you.

• If you qualify for the car loan, and end up financing the car, might as well drive by and wave to the home you could have had.  I know.  It sounds rough.  But I’m warning you ahead of time.  Buying a car before closing might stop your home mortgage.  When your income and your debt are perfectly balanced (according to the Mortgage Lender’s rules), you can qualify for a mortgage loan.  But, if you buy a car before closing day, you will tip the scale to the “debt” side.  The money that was free to use for a mortgage, now has to be split to cover that new car payment.  In many cases, this will STOP a loan approval.

2)  Apply for a personal loan or credit card- This can be just as detrimental as buying a car.  Even if the loan or credit card is for a new refrigerator, furniture, a vacation or for paying off debt; it’s a NO-NO before closing day!

• If you’re approved for a personal loan, the new debt will have to be included in your debt-to-income ratios.  In other words, if you qualify for a mortgage loan today and then get a $2,000 personal loan a week before closing day, the mortgage lender will have to include your new monthly personal loan payments into your debt calculations.  The money you had “left over” for a mortgage will have have to be reduced by the amount of your new personal loan payment.  Again, whether or not you are approved for the personal loan, the credit check will reflect on your credit score.  If you end up getting the loan, your score will drop even lower.

• If you open up a new credit card, not only will the credit check reduce your credit score, but the debt will count against you, too.  The mortgage lender will see your open line of credit as a debt load.  Even with a zero balance, the fact remains, you can charge that account up to the max at any given time.

If you’re having to get a credit card or a loan at the last minute (just before closing), the red flag alerts the Mortgage Lender.  “Uh-oh, the home buyer needs more money.”  This is NOT a good sign.

3)  Make a last minute deposit into your bank account (other than employment income)- Where is that money coming from?

• A random deposit may seem harmless, but if you don’t document where that money came from, you will stop your approval in it’s tracks! A random deposit has to be explained to prove it wasn’t borrowed from someone.  Borrowing money from “Uncle Matt” is the same concept as getting a personal loan from a bank.

SCENARIO #1:  Uncle Matt gives you $1,500 for your down payment.  Your mortgage lender checks Uncle Matt’s bank statement to see if he could afford to give the $1,500 gift.  After reviewing his account, the Mortgage Lender sees a recent $1,500 deposit from “Rapid Loans.”

 

After further investigation, it’s determined that Uncle Matt obtained a $1,500 loan in order to give the “gift.”  As helpful as Uncle Matt was trying to be, this will not work.  MONEY CAN NOT BE BORROWED TO COVER A DOWN PAYMENT.

 

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SCENARIO #2:  If Uncle Matt has an established bank account with enough funds to spare $1,500.  His “gift” to you is totally acceptable.

 

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Texas law requires all real estate license holders to provide the Information About Brokerage Services to all prospective clients. TREC’s Consumer Protection Notice.