I have heard several people refer to the loan process as “similar to an audit”. It’s completely invasive, demanding and heavily regulated these days. Gone are the times when we could promise the lender that we really can afford that half a million dollar home, pinky swear! Now a days they need to evidence everything, and show that there will be no more government bail outs. You realize uncle Sam doesn’t care for those, right?
Assuming you have found your new lender, at a real mortgage lending establishment, not a bank. 😉 You will proceed with an application. From there, the lender will run your information through Automated underwriting for approval. If all is well, the automated, computer underwriter will spit out a “DU- Approved” answer, contingent upon all the information being verified.
See, that’s where they get you! You can say you make $200k a year, but if your taxes show that you only made $195k last year, you’re going to need to show more paperwork to resolve that discrepancy. Simple transactions are those with a W-2, pay check, showing the same $$ each time, perfect credit scores, and no outstanding debt. However, in reality there’s a few more things that tend to pop up, can I get an amen?
Some of the things that I’ve seen that affected buyers ability to qualify:
- Mysterious bankruptcies
- Back taxes
- Taxes never filed (but believed to have been)
- Unreimbursed job expenses and how they’re received by an underwriter
- That CPA oops, not claiming large chunks of income and instead showing a loss
- Business owners with more than 30% ownership, discover that now they must also show business taxes… (that’s a big rabbit hole)
- Zero credit…. No debt is great, until you try to prove to a lender that you’re responsible with debt.
- Student loans, how they’re calculated may stun you
- Divorces gone rogue
- Identity theft
- The surprise child, which comes with a surprise child support order.
- The stale debt that is reignited when you chose to do the right thing and pay it off.
- The double credit inquiry knocking the score down just enough to cause problems
- The dog chokes on a rubber ball causing a bill that depletes funds to close
- The car accident, buyer goes to buy a new car, changing debt to income and credit score
- Bankruptcy discharge filed on the wrong date, changing timeframes
- Holiday causes paystubs to fluctuate on buyers recent paystub, changes income qualifications
- Birthday money from grandma creates questionable deposit on bank statement
- Dad co-signs on a lease for a child, changing debt to income
- Second job is cash under the table, creating questionable income
- Buyer takes a promotion during escrow, new job, new income, new qualifying requirements
- Buyer transfers money from a savings account and now has to restart sourcing funds from the new savings account
- Unexpected Pregnancy changes buyers needs
- The buyers bank is outside of the state and requires wires to be done in person. (that’s an expensive trip)
- Solar…. So many things go wrong when solar is involved.
- Flood zones change, new insurance costs, debt to income changes
- Buyer has excessive claims on last insurance and homeowners insurance denied. No ins, no deal.
The list goes on and on… the point is, that so MANY things can go wrong during a your loan process, and sometimes, it’s not something you could dream up in a million years. Be ready for anything and follow this rule of thumb: Until you are closed, don’t buy, sell, deposit anything. Don’t move, don’t change anything, don’t accept gifts, don’t answer your phone or post on social media… just hold very still and check with your agent before you do anything!
Once you get through the painful and tedious approval by the underwriter, and the appraisal is in and approved, the lender will send out the closing disclosures. This will give the buyer a 3 day waiting period to make sure that they have considered everything, and they’re ok with taking on such debt.
Just don’t think you’re in the clear. Often times the lender will pull credit the day of close, to ensure that the buyer still looks good to qualify. If you think a kohls card is worth it, I suggest you wait till after you close for that application. A loan disapproval because you were anxious to decorate your new home will not get your earnest money back.