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Lending standards have gotten much tighter as a result of the mortgage crisis. Fannie Mae and Freddie Mac now require a credit “refresh” no more than three days prior to closing . Since most mortgages are sold to Fannie and Freddie, most lenders follow their guidelines. Your lender will be reviewing your credit report again just prior to the closing date so please do not do anything that would change your credit report before closing, even if you have received loan approval. Home buyers are often not aware of how something as innocent as making a credit card purchase or moving cash from one bank to another can jeopardize the mortgage application process. Please be aware of these common areas that need special attention:
Don’t Move Cash/Savings Around:
All funds have to be verified prior to closing, including the source of those funds. Moving assets around can create a paper trail nightmare. The best practice is to leave everything where it is, even if the purpose of the move is to pool your funds for buying the house. Please consult with your lender before you move any funds.
Large Deposits:
Your lender has to verify all sources of funds for the transaction. They will be looking at any large non-payroll deposits into your asset accounts—checking, savings, money market, etc. You should be prepared to document the source of these deposits—copy of the bonus check, receipt from the sale of an asset, etc. If you have a question as to what documentation is needed, please call your Loan Officer.
Selling Something?
If you are selling an asset such as a car, an antique, baseball card collection, etc, to come up with the cash for closing, please document the transaction. For instance, with the sale of a car, make a copy of the check the buyer gives you, the car title, and a bill of sale.
Gifts:
Gifts from relatives are a very common item in the purchase of a home; however, there are certain ways a gift needs to be handled so as to not create a paper nightmare for you. If you are going to receive a gift, please contact your Loan Officer before receiving the gift. You will be given specific instructions and a Gift Letter Form for your particular type of loan.
Become a Paper Hound:
Save all of your bank statements and pay stubs from now until closing. Your lender may need them so keep them handy.
Do Not Pack Any Financial Papers:
Keep all of your tax returns, along with any W-2’s, 1099’s, K-1’s, and any other financial papers from the past two years, in a handy place. If you sold a home in the past two years, also have your (HUD-1) Settlement Sheet handy. You may have to produce an item that you did not expect.
Credit Cards/New Debt:
Do not apply for any new credit. The new creditor will show up when your credit is refreshed just before closing, and the lender will have to verify that there are no new accounts or debt before you can close. If you are planning to pay debt off in order to close, check with your lender first. They may be able to pay off that debt at closing with no effect on your approval process. If you try to pay it off before closing, it may not show up on your credit report in time to verify the pay-off, and the lender will have to manually re-verify each creditor’s current balance, which requires more time, and may delay closing.
Changing Jobs:
Please do not change jobs during this process without your Loan Officer’s knowledge. This could jeopardize your loan approval.
Today’s interest rates continue to be at historically low levels. It’s a great time to buy, refinance, or perhaps even refinance to a 15 year loan to save tens of thousands of dollars in interest. I have several loan officers that can offer incredibly competitive rates. Please contact me if you need more information!
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