Mortgage Deal Killers

Mortgage Deal Killers

You did it! You got approved for a mortgage and you’re finally out looking for a new home.  You may even have a home under contract!  Just be careful during this process because even with a pre-approval letter from a lender, you can still sabotage your ability to get final loan approval if you do any of the following:

  1. Put that new sofa on a credit card. Ok, you’ve measured out your potential new living room and that suede sectional is everything you need and more. Do not rack up your credit card with large purchases. In fact, if you can swing it, don’t use any of your credit cards excessively (or at all) and certainly don’t let the payments fall behind.
  2. Tell that pushy cashier at Kohls that you’re buying a house, so enough with the high pressure sales to get an additional 30% off! Isn’t it funny how at Kohls you always save, like, $700? I actually really, deeply, truly love Kohls, but, y’all know what I mean.  Whatever store it is, do not, no matter how great the temptation, get any new lines of credit during this mortgage process.  That “extra 20% off today” is not worth the risk of lowering your credit score.
  3. You’re getting a new house, don’t go out and get a new car, truck, or van…unless you want to live in them. I’m not kidding.  This has happened.  Settle down with that fabulous credit score and save the new whip for your next big purchase.
  4. Don’t even co-sign for a loan for anyone (have I made the “ no new credit until you’ve closed” thing clear?) If your cousin Joey desperately needs a new car and the only way to make it happen is with a co-signer, you are not the co-signer he is looking for! Or, if you are, Joey must wait until you’ve closed.
  5. You’ve set aside money for your closing.   Don’t touch it.  The “oops I spent my down payment money,” excuse has never worked for any underwriter.
  6. Speaking of money…please don’t make any large deposits into your bank accounts without checking with your loan officer. I know this sounds crazy, because you’d think the more money in your bank account the better, but unexplained deposits can look suspicious to an underwriter, and whatever the deposit is must be documented.  So, just to avoid the hassle, tell your sister she can pay you back for that Spring Break trip AFTER you’ve closed.
  7. Speaking of bank accounts…please don’t change bank accounts until after you’ve closed.
  8. Keep your job! Even if you’ve been offered the opportunity of a lifetime, or you just simply cannot stand Bob in accounting for one more day of your life….do not change jobs until after you’ve closed. Ignore Bob too.
  9. Still thinking about that suede couch? Keep it in mind, but whatever you do, don’t request a credit line increase in order to purchase said suede couch after closing.  Patience is a virtue!
  10. Lastly, if your lender requests a document from you, please, for the love of all that is holy, get it to them in a timely manner. By timely manner, I mean within 24 hours.  Ideally, 2-4 hours!  Truly, I cannot tell you how many deals have almost fallen apart because a borrower couldn’t get one little piece of paper in and the contract expired and the sellers didn’t want to extend the contract.  Phew!  So much hassle! Just know that if your lender is requesting a document, it is imperative that you get them that document as soon as humanly possible.

The basic overall lesson here, folks, is…major changes in income, assets, or debt can alter the terms of your mortgage or kill your deal all together.  So, if you’re not sure how your action may or may not affect your approval, just ask your lender.  With an open line of communication, we can make your dream of home ownership a reality!

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No Single Credit Score is the Answer

No Single Credit Score is the Answer

According to an article from flordiarealtors.org, one of the most recognized credit scoring companies, Experian, was penalized $3 million last week by The Consumer Financial Protection Bureau (CFPB) for telling consumers that the credit scores they provide are the same scores that lenders use to make credit decisions.  This comes on the heels of similar fines and accusations made against Equifax and TransUnion earlier this year.  The CFPB ordered the credit bureaus to truthfully represent how credit scores are used, and forced them to change the language in their marketing.

A credit score is the numerical summary that predicts a consumer’s payment behavior.  As a consumer, you need to know that no single credit score or credit scoring model is used by every lender.  When you are looking to obtain a mortgage, understand that 9 out of 10 lenders use your FICO scores from the three bureaus in what’s called a tri-merge credit report.  And, of those three, we use the median score as part of our decision to extend credit.  “Tri-merge” is just another way to say 3-in-1.  It’s just one long credit report that includes information provided by all three credit bureaus: Equifax, TransUnion, and Experian, each of which has their own separate credit reports and FICO scores.  The tri-merge is the all-in-one summary that lenders use to get an accurate assessment of your history as a credit user.  Your tri-merge will determine what terms your lender can offer you, including your interest rate.  General rule of thumb: the lower your credit, the higher your interest rate.

The reason lenders use three scores is because we want to make sure nothing slips through the cracks.  It basically allows us to triple check your credit before we give you hundreds of thousands of dollars.  Each credit bureau uses different scoring methodology and software.  They then supply a generic risk score based on their own software.  And, many times, the three credit scores are quite different from one another.  Additionally, the major difference in that tri-merge that your lender pulls in the loan application process and the credit report you see from a website, is that those credit bureaus sell you, the consumer, their own proprietary score, NOT your FICO score.

So, when you think you’re ready to buy a home, understand that the “free credit report” or one credit score from one bureau can be used as a guideline, but understand that a lender’s hard credit pull to assess your credit history is going to be the most accurate.

Source: www.gloridarealtors.org/NewsAndEvents/article.cfm?p=2&id=350144

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