L■ Matt McPherson / Columnist
ast week’s article on the 10 Commandments of selling a home was very well received by the community. Jennifer Murphy, a very productive local realtor from Coldwell Banker Associated Brokers recently posted to Facebook “The 10 Commandments of Acquiring a Loan while Buying a Home.” With the approaching buying season just around the corner, these guidelines can help eliminate many common mistakes made by buyers during the loan process and promote a smooth and transparent transaction. I’ve expanded on her points here.
1. Thou shalt not make large deposits without first checking with your loan officer. Any discrepancies in income, especially large deposits, may create more problems than solutions. Undocumented income is heavily scrutinized by banks and lending institutions and may negatively affect your chances of getting a loan.
2. Thou shalt not originate any inquiries into your credit. Every time an inquiry is made into your credit, your credit score declines. The loan process and the equations used to calculate income, expenses, risk, and other factors are all dependent upon a solid FICO score that should not decline at all during the loan process. Even after the loan has been approved, follow up inquiries by the lender are sometimes made prior to close of escrow.
3. Thou shalt not co-sign a loan for anyone. On many occasions a borrower does not realize the implications of co-signing for an additional line of credit or a loan for someone else. Obligating oneself to an additional line of credit negatively affects the credit score and alters the income-to-debt ratio, which can blow the possibility of acquiring a home loan.
4. Thou shalt not change jobs, become self-employed or quit your job. Another very common mistake made by borrowers is quitting or transferring employment. Even if the borrower takes a better job with a larger salary, the loan process often will have to start over and be recalculated months and sometimes years later based on a new income cycle or rate. Lenders look for and appreciate regimented and established incomes over extended periods of time.
5. Thou shalt not change bank accounts. Some borrowers have a misconception that reestablishing wealth and banking in a new institution could have a positive reflection on the loan process. This dilemma has thrown a monkey wrench into many real estate transactions. Many times banking institutions will entice clients with interest rates and fee reductions, but just like the above situations, this restarts the loan process and results in many escrow cancellations.
6. Thou shalt not use credit cards excessively or let current accounts fall behind. This cannot be emphasized enough, especially to buyers who feel financially stable. Large amounts of income or, as one example, a substantial tax return, may give the recipient a false sense of financial security. During the loan process, frugality and financial accountability is extremely important and will sometimes reflect in the interest rate and fees associated with the loan.
7. Thou shalt not omit debts or liabilities from your loan application. Transparency with your lending institution is crucial and indicates to the underwriter your willingness to cooperate with the process and eliminates any miscommunication or confusion throughout the entire loan procedure.
8. Thou shalt not spend money you have set aside for closing. The temptation associated with large sums of money can easily hamper an approved loan. Additionally, the equations and calculations used by banks and lending institutions to establish loan rates and fees is many times contingent upon funds needed to close. Not only does the lender want to see sufficient money to close, in numerous situations they want to see a set amount of monthly payments, which transmits a sense of financial security to the loan underwriter.
9. Thou shalt not buy furniture on credit. Impulse buying is very common, especially with first-time home buyers. The surge of positive emotions associated with purchasing one’s first home bolsters impulsive decision making and can result in premature purchases associated with the property before the close of escrow. Always wait to buy any upgrades, furniture or services related to the home until after the transaction has closed.
10. Thou shalt not buy a car, truck or van during the escrow period. This seems to be the most common misstep made by buyers when purchasing property. Any real estate agent who has been in business long enough has a story about the escrow they lost because the buyer decided to buy a car, which resulted in the lender canceling the loan. An over-inflated sense of financial security related to a new home purchase seems to blind borrowers to the responsibilities required during the loan process.
These commandments can serve as an excellent reference when initiating a loan or line of credit when purchasing a home. Transparency with your lender and restraint from unnecessary spending remain dominant factors throughout the loan process. Adhering to these guidelines during a transaction will encourage peace of mind once the process is completed.
6th Generation in the Valley