By: Tom Dempsey
There are plenty of advertisements that tell you to find out what your credit score is. While it’s true – knowing your credit score is very important – your score is only 25 percent of what you need to know when buying a home. Moreover, if you’ve already written an offer on a home, there usually isn’t that much that can be done to your credit score before closing. Sure, you can resolve disputes, correct inaccuracies and make sure your creditors are reporting your activity correctly; however, that should all be done 60 to 90 days before you make on offer on a new home.
What happens once you make the offer and the seller has accepted it? Where is the guidance about what to do and what not to do during the financing phase of your home purchase? Here are a few things you should prepare for and also a few things you shouldn’t do:
WHAT YOU SHOULD DO
Eliminate long delays and extra documentation by following these tips when financing a home:
1. Make sure you have access to all sources of assets being used for your mortgage. This includes bank statements (not Internet printouts of your account) and 401(k), IRA and other investment account statements. Be prepared to document all large deposits into these accounts. Your mortgage lender will want to source the funds being used for your down payment or settlement charges. If you’re receiving a gift for the down payment or settlement charges, be sure to alert your gift donor that he or she may need to provide information about their ability to donate. Their funds could be subject to sourcing as well. Verification of assets is one of the foremost reasons home purchase financing transactions are delayed.
2. Be prepared to submit two full years of your tax returns including all schedules. Your mortgage lender is going to order your tax transcripts from the IRS and will want to verify what you submitted in your mortgage application with what you submitted to the IRS. Submit your tax returns early in the process so underwriters can verify the income available for qualification and eliminate the potential for any hang-ups closer to your closing date.
3. Keep all relative income, assets and credit documentation close by. Additionally, you should provide as much information about your assets, income and credit profile during the first 72 hours of discussion with your mortgage banker. This will save you time later on in the process and allow for anything that needs clarification to be clarified early. And this creates efficiency.
[Mortgage Help: Get your free credit report and see if your credit score is mortgage qualified]WHAT YOU SHOULDN’T DO
Some of this may seem like common sense; however, these “shouldn’t dos” can cause delays in the mortgage process:
1. Open a new credit account. Opening a new credit account during the process of your mortgage for things such as appliances and moving expenses will need to be documented with account statements and payment amounts, and could affect your debt-to-income ratio. Most people think that once they have applied for a mortgage, they can start working on these things, but the opposite is true. Your creditworthiness and qualifications are constantly reviewed throughout the process.
2. Transfer large amounts of money around and deposit ‘cash’ into your account. As mentioned earlier, your lender is going to want to source all deposits and transfers into your account to make sure you are using borrower funds. If you do transfer money from one account to another, be prepared to submit the statement illustrating from where you transferred the money. This paper trail is going to be documented; if you are prepared to document it all, great! Otherwise, you should arrange funds in your account 60 days before you apply for a mortgage. Additionally, cash deposits that can’t be sourced will be deemed as unacceptable assets. If you don’t trust your bank and prefer your mattress instead, be aware that you should have that money in a bank account 60 days prior to applying for a mortgage and leave it there until the day before closing.
3. Dispute items on your credit report. This is a new one. Certainly, if you have a problem with a creditor with regard to errors on your account, misapplied funds, etc., you are free to dispute that account with the three major credit reporting agencies (Experian, Equifax and Transunion). Something to keep in mind when you are applying for a mortgage is that disputed accounts DO NOT factor into your credit score. Your lender, depending on the account(s) in dispute, will most likely require you to have the dispute resolved and an updated credit report to reflect an accurate credit score. With the tightening of mortgage guidelines, your credit score plays an important part in your “cost of borrowing.” Lower credit scores may pay more in settlement charges than those clients with a higher credit score. Try to resolve your disputed accounts prior to applying for a mortgage.
Hopefully, these tips will lead you to a more satisfying mortgage experience. Remember, the process is more detailed in 2011 than it was in 2005, so be prepared. Your lender will appreciate your effort and respond by processing your loan more efficiently, ensuring a smooth experience and a timely closing. As always, communication is the key and being an informed client is a huge benefit for you.
Tom Dempsey has more than 13 years of experience in the mortgage industry and currently serves as Vice President of the Quicken Loans Relocation Made Easy℠ program. He’s a strong believer that knowledge is power and that an educated consumer will enjoy a smoother and easier home buying experience. In his spare time, Tom likes to play golf and barbecue with his friends.