June 22, 2010

7 Mistakes to Avoid ... Don't Blow Your Loan Approval

CONGRATULATIONS! Your loan has been approved so you can relax right? Nope ... not yet. Lender's have added new quality controls during the loan process that you need to be aware of because one wrong move and your loan approval could crash and burn. Before you learn seven mistakes to avoid, let's make sure you understand when the loan process actually begins.

From the moment you apply for a home loan and get "pre-approved" the spotlight is on your finances. Since it can take weeks or even months to get a purchase offer accepted, borrowers need to consider the entire time a "quite period" and not make any credit decisions that could blow the approval.

Once escrow is eventually opened, the loan officer updates your loan application, requests current income/asset docs and runs another credit report (if the one in your file is older than 3 months). After you get through underwriting and receive loan approval, the lender continually monitors your credit activity and may pull a new credit report prior to funding the loan. If the credit report shows your financial obligations have changed since the loan application was submitted, it will cause delays because the lender wants an explaination. If your debit-to-income ratio is already boarderline, new debt could increase your ratio beyond qualifying guidelines causing your loan to be denied. OUCH!

Seven Mistakes to Avoid

  1. Don't increase balances on credit cards - the debt listed on the initial loan application needs to agree with the debt appearing on the credit report pulled before the loan is funded.
  2. Don't apply for any new debt - credit cards, auto loan, interest free purchases etc.
  3. Don't allow bank accounts to become overdrawn - from the moment you get pre-approved through the close of escrow, bank stmts need to be free of NSF charges.
  4. Don't change employment - employment is verified twice during the loan process. The lender will call all employers for a last minute verification before funding the loan.
  5. Don't let your driver's license expire - of the two forms of ID required by the lender, a drivers license is most common. The lender will not accept an expired license.
  6. Inquiries on credit report - any time you authorize a company to run your credit it creates an "inquiry" on your credit report. The lender wants an explaination for each entry

There are many other do's and don'ts to be aware of and its your loan officers job to make sure you are. As much as you may be tempted, don't rush out and by the furniture or appliances until AFTER escrow closes.