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The Mortgage Process: Dos and Don’ts

Loans | Mortgage

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Do's

Don'ts

Save up for your down payment and closing costs.

Although it can be tempting to go on a shopping spree for new furniture or start buying home improvement supplies, the best way for you to prepare is to save, save, save. Even if you have your whole down payment saved already, you should also be prepared to pay roughly 2-5% of your home’s purchase price in closing costs.

Make sure you have access to the documents you need.

Your mortgage lender will ask for a variety of different documents to verify your income, your assets, and your identity. Being prepared with either physical or electronic copies when your lender requests them will help speed up the approval process. Some of these documents may include:

  • 2-3 months’ worth of bank statements
  • Past W-2s and tax returns for all borrowers
  • Recent paystubs
  • A valid photo ID
  • Proof of your current address, if the address on your ID is out of date
  • Statements for your retirement accounts (IRAs, 401Ks, etc.)

Continue making your payments on time.

Underwriters will be carefully examining your credit history, and most lenders will request an updated credit report just before closing. Make sure that you continue making all your payments in full and on time to avoid issues later.

Notify your lender of changes in your employment.

This includes changes in your pay, position, or pay status (for example, moving from an hourly wage to an annual salary.) We’ll discuss changing employers or employment status later on in this article, but the rule of thumb is to always keep your mortgage lender informed — even if it seems like a negligible difference, it’s better to provide too much information than not enough.

Tell your lender if you plan to use gift funds for your down payment.

Gift funds are exactly what they sound like — money that is given to you as a gift, with no expectation of repayment. They can be used to help you meet your down payment requirements, but different types of loans carry different restrictions on the source of the funds and how much you can receive. For example, some types of loans only allow gift funds that come from relatives, domestic partners, or fiancés; others will allow you to accept money from friends, charities, and down payment assistance programs. And in all cases, gift funds must be properly documented. Make sure you are up front with your lender about your plans to make your down payment, since this can affect the types of mortgages for which you are qualified.

Keep communication lines open.

Closing is a team effort that requires the real estate agent, the buyer, and the mortgage lender to work together. Although your lender and agent will be doing most of the heavy lifting, you can do your part by making sure to respond promptly to phone calls or emails and providing all the documentation your lender requests.

Apply for new credit.

Taking on new debt while you’re trying to apply for a mortgage is a mistake you don’t want to make: Doing so can seriously delay or even completely prevent you from closing. Do yourself a favor and avoid new credit card applications, vehicle purchases, and refinances until after you have your new keys in hand. You should also avoid co-signing for anyone else during this time.

Quit your job or change employers.

One of the things that underwriters look for during the loan approval process is stable long-term employment. Quitting your job or changing employers can signal that your employment situation may be less than stable, which could potentially impact your ability to make your monthly payment. If you do have plans to change jobs, you should notify your lender as early as possible to avoid running into issues later.

Make large, unverifiable deposits or withdrawals.

If you do need to make large deposits or withdrawals, be sure to document their purpose and where the money is going or coming from. For example, if you are taking a distribution from your IRA or 401(k) to help with your down payment, you should keep some sort of proof of the transaction, such as a copy of the check or a form provided by your broker or financial advisor. Cash deposits and withdrawals are the most difficult to verify because they have no paper trail, so avoid them if possible.

Make large advances on your credit card or line of credit.

Although it may seem like a great way to supplement your down payment or closing costs, taking a cash advance on your credit card or drawing on a line of credit can alter your debt-to-income and credit utilization ratios. Just like applying for new credit, this can cause serious issues that may prevent you from being able to close.

Close credit card accounts or pay off loans.

You might think that paying off debt would help your credit, but it’s best to consult your lender before making changes to your credit portfolio. Additionally, paying off your debt now could use up cash that you’ll need to cover closing costs and appraisal fees later.

Write out any NSF (“bounced”) checks.

No matter where you do your banking, you will need to provide copies of your statements. Overdrafts or NSF checks (short for “non-sufficient funds”) can signal problems with meeting your current financial obligations. Be sure to carefully keep track of your account balance, along with any outstanding checks or automatic payments you have coming out.

And last but not least, don't be afraid to ask questions.

Applying for and closing on a mortgage can be stressful, and sometimes it’s downright confusing. Asking questions can help you to understand the closing process, as well as your role in it. Your mortgage lender and your agent are there to help you, so don’t hesitate to speak up when you need clarification or you’d like more information.

The content provided in this blog is for informational purposes only. Nothing stated is to be construed as financial or legal advice. Some products not offered by JVB. JVB does not endorse any third parties, including, but not limited to, referenced individuals, companies, organizations, products, blogs, or websites. JVB does not warrant any advice provided by third parties. JVB does not guarantee the accuracy or completeness of the information provided by third parties. JVB recommends that you seek the advice of a qualified financial, tax, legal, or other professional if you have questions.

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