What could go wrong?
July 17, 2021
You have done everything right up to this point. You checked your credit, kept inquiries and new accounts to a minimum. You saved money for the down payment and closing costs, you have had consistent employment and are making sufficient income compared to your debt. You have diligently kept your paperwork and acceptable explanations for anything unique, you have found the mortgage advisor you want to partner with and have an accepted offer on a home of your dreams. What could go wrong?
Ask any professional in the real estate industry and they can likely tell you a story about a well-qualified buyer that ended up falling out of escrow. "Falling out of escrow" is a term used to refer to a home under contract with an agreement between buyer and seller; something changes and the contracted offer cannot proceed as is. This can easily be a change in the buyer's ability to qualify even after a successful pre-approval and qualified loan review.
So how do you, a well-qualified buyer, avoid the potential of being denied your loan after all of your correct steps and efforts? I will keep it simple to start: whatever the details of your qualifying is, DON'T change anything until the keys are in your hand and the deed is recorded!
What does this really mean?
Your loan application and qualifying details will go through several steps in the loan process in which your qualifying factors are being reviewed, compared to guidelines requirements for your loan and property. The first is with your loan officer during your pre-qualification or pre-approval phase, ideally before you even begin house shopping. The second is when you find a property and make an offer to ensure that the loan initially set up works with the terms of the offer, again when your offer is accepted, and you are now under contract for the purchase. Each review is to ensure any further negotiated terms do not change your qualifying. There are three reviews of your qualifying before you have even begun with the formal approvals from the lender that will fund your new home loan.
Now that you are under contract, your application for that specific home becomes official and your new estimated loan terms are disclosed. Your loan package goes to a processor for review and then to an underwriter, each of these parties again reviewing the details of your qualification and obtaining necessary verifications to document the accuracy of the information. This can include, but is not limited to employment, bank assets, tax returns, debts, etc. Once the underwriter has reviewed your file, they will either deny, suspend or conditionally approve your loan application. This is likely weeks after your initial application was approved by your loan officer and weeks still before your keys are in hand. Through this time it is critical that your qualifying details not change; that is, unless you and your loan officer make decisions together that will be acceptable to your situation. Updated documentation will be requested, as well, to ensure that what is provided is always the most current dated items.
The final verification of your qualifying information comes within the last 24 hours of closing: potential verbal verification of employment, soft pull review of your credit report, binding of your insurance policy and more. If anything has changed, your application and qualifying terms are no longer the same and have to be updated, and will then go back through the process of approval. You may be asking yourself why or how this would happen?
Here are some common examples: Applying for new credit thinking it would not matter because you were already approved – that new card, new furniture, appliances for the house, 0% transfer balance, etc. – needs to wait until your keys are in your hand! Low balances on cards you already have; you may think because it is not a new account you can use it for purchases instead, surely you can use credit you already have? NO, the higher balance will create a higher payment and can change your qualifying debt to income ratio.
Surely, I can trade in a car with a higher payment and get a different one? Perhaps it will not disqualify you but if your loan officer doesn't know and does not have all of the documentation necessary for the sale and purchase, you just delayed your closing until they do.
New job offers, promotions, raises, etc., are all great news. However, make sure your loan officer knows so that any changes can be documented and verified properly, and they do not cause delays or changes to your approval status.
Suspension and/or job loss, can have a negative impact even after your official approval. Giving notice? Yes, that, too. Often a verbal verification happens within the final day or two and if that employer tells the verifying party that you gave notice, you no longer have that qualifying income.
You are preparing to move, had a garage sale and deposited a large amount of cash. Prepare for a delay in your closing if you have not documented it for your loan officer and they see an updated bank statement with a large unexplained cash deposit.
So, as you can see, every part of your qualifying application matters up until the moment keys are in your hand and the new deed is recorded. Keeping all of your qualifying factors (status quo) updated until your purchase is closed and discussing any necessary changes with your loan officer before anything changes is key to avoiding potential problems or delaying the process.
The celebration of owning your new home will be worth it.
You can contact Alysha Boles at (661) 858-7214, or visit http://www.advisoralysha.com. See ad on this page.