Written By: Glenn Michaels, Op-Ed Writer
Today almost every lender does automated underwriting and can furnish an applicant with an approval pretty quickly subject to underwriter validation.
Rates move up and down or stay the same; normally an uptick in the rates will not invalidate a loan approval as most lenders will issue an approval with a maximum rate. The mortgage volatility is not here, so rates are not moving up or down quickly. However certain behavior by borrowers or actions can kill an approval. We will discuss the most common eight reasons why an approval can be rescinded. Normally it can take forty five (45) days for a lender to go through the entire process to have a loan cleared for closing. An applicant or potential borrower has to make sure that they do not do anything during that waiting period to kill that loan.
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The bad behavioral items are below:
1. Don’t buy a new car or trade up to a bigger lease. Most lenders reverify a borrower’s credit during the processing stage or in the Quality Control state. In addition an inquiry recently made by an automobile dealership will also bring up a reason to investigate a car loan further. Over the years I have had a number of loan applications fail during the reverification process as a new car loan has pushed the ratios too high for a loan approval. Rule #1: Do not buy a new car or enter into a bigger car lease.
2. Don’t quit your job to change industries or to start a new company. The loan was originally approved because the applicant has income or job stability. Now that the applicant has left his job we no longer have job stability and possibly income stability as well. Rule #2: Do not quit your job during the processing of your loan application.
3. Don’t switch from a salaried job to a heavily commission job. If a borrower earns a salary and qualified for the mortgage with that salary that is why the borrower was approved. If the borrower goes from a salaried position to a heavy commission position the commission income will not be counted to qualify as there is no history to average the income. Rule #3: Do not switch from a salaried job to a heavy commission job.
4. Don’t transfer large sums of money between bank accounts. If a bank account is reverified and it is noted that there are large deposits and or withdrawals from one account to another the loan processor and or Quality Control person will have to question these moves. There could be a delay in closing the loan due to the large deposits, transfers and withdrawals. If an underwriter feels uncomfortable with these moves they might invalidate the loan approval. Rule #4: Don’t transfer large sums of money between bank accounts.
5. Don’t forget to pay your bills even those in dispute. If a borrower does not pay his or her bills and a new credit report is pulled, there will be new late payments and the credit scores will change. Rule #5: Do not forget to pay your bills – even those in dispute.
6. Don’t open new credit cards – even if you are getting 20% off. New credit cards change the borrower’s credit capacity and utilization of their credit. These changes can also cause a change in a borrower’s credit score. Credits scores can change weekly so do not open new credit during this period. In addition the ratios can also change. Rule #6: Do not open new credit cards – even if you are getting 20% off.
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7. Don’t accept a cash gift without filing the proper “gift” paperwork. If a borrower receives a sizable cash gift and deposits the funds in a bank account and the lender discovers it they will be required to explain this. If a borrower does not use a bank account fund and uses the cash gift more questions will arise. If this should happen during the processing stage, notify the lender so the proper gift documentation can be completed. Rule #7: Do not accept a large cash gift without filing the gift documentation.
8. Don’t make random undocumented deposits into your bank accounts. All deposits made into bank accounts during the processing stage should be documented in case questioned. It is a good practice during the processing stage to keep good records behind each and every bank deposit. Rule #8: Do not make random bank deposits without the supporting documentation.
In my forty one (41) years of mortgage lending it is amazing how many borrowers have lost their approval because they did one or more of the eight 8) not to do’s while buying that dream home.
About The Author
Glenn Michaels - As an op-ed writer, Glenn Michaels is a mortgage underwriting instructor for CampusUnderwriter (www.MortgageUnderwriter.org). As a BBA & FHA DE Underwriter, Glenn is a Pace University graduate who also graduated from New York University’s School of Mortgage Finance. Glenn has conducted numerous training classes and has worked in the mortgage banking industry for 38 years.
