Attention Home Buyers! Do not expect your loan to close smoothly if you make one of these money moves during your loan process (or right before your loan process). In fact, it could actually cause your approval to slip and fall into a denial.
“Can they do that? I have my approval in writing?” you may ask.
Absolutely. The lender can withdraw your loan approval — even after giving you a written commitment — if they perceive that you have become a greater credit risk.
Seven Mistakes to Avoid
1) Don’t apply for new credit of any kind.
2) Don’t pay off collections or charge-offs during the loan process.
3) Don’t close credit accounts, not even old ones you haven’t used in a long time.
4) Don’t increase the balance on your credit cards, which also means don’t buy furniture, appliances, or anything else for your upcoming new home until after closing.
5) Don’t consolidate your debt onto one or two cards.
6) Don’t co-sign on a loan for anyone.
7) Don’t change your name during the loan process.
If you need clarification about any of the seven, let me know. But please, take this advice as “set in stone” unless your loan officer has specifically given you an exception, because the last thing you need is more stress during your loan closing.
Assume you rent an apartment and drive an old car, and you would like to upgrade your life style.
Question #1: If you have to choose between buying a house or a truck, which do you choose?
Question #2: Assuming you can afford to buy both a house and a truck, which one do you buy first?
Before we look at the answers…
A True Story: A young gentleman finished his credit repair work and raised his credit score to 640. This qualified him for the FHA Elite loan for home buyers.
He felt great! He was excited.
So he ran straight to the auto dealership and bought himself a brand new 2018 Chevy Tahoe. (MSRP $47,500)
Then he drove home and called his mortgage loan officer. “I’d like to get approved to buy my first home,” he announced.
So the loan officer took the application and ordered his credit report–and bam!–he got declined.
“Why?” he asked, totally stunned.
His new truck purchase dropped his score from 640 to 565. Too low for any of the first-time home buyer programs! Too low for the FHA 3.5% down payment program!
Not only that, but with a hefty new payment, he no longer qualified for the purchase price he needed anyway.
Maybe the Tahoe is so luxurious, he’ll be happy living in it. (Bad joke, sorry.)
Let’s See How You Did on the Quiz
Answer #1: Buy the house. Real estate is going up in value. You can increase your personal wealth by owning a home. A vehicle goes down in value the moment it become “used.”
Answer #2: Buy the house first, always, even if your credit score is 800. A higher score and a lower debt ratio will qualify you for better, cheaper financing.
The house is more important than the truck. Buy your most important item first (not the easiest to get).
I welcome your comments. Thank you for sharing this with others and on social media. Too many people are shooting themselves in the financial foot by purchasing a vehicle before the home.
Is 2018 your time to buy a home? If so, here is a Short List to help you reach your goal.
SHORT LIST TO HOME OWNERSHIP
1) Check your credit.
- Have or establish clean credit for 12 months so the lender can see you are on track financially. One late payment can be excused with a good explanation.
- To qualify for the best interest rate, you want the following credit score:
- FHA with 3.5% down payment: 620 to 640
- Conventional with 3% down payment: 640
- Conventional with down payment assistance: 640
- VA with zero down: 580 to 620
- USDA with zero down: 640
2) Save enough money for your down payment and closing costs.
Now is the time to cut spending and save money. The sacrifice is worth the reward.
3) Avoid opening new accounts.
Do not open a new credit card, line of credit, take out an auto loan, or acquire any other type of financing for the six months prior to buying a home, because doing so could hurt your credit score and/or your debt ratio for qualifying.
“Buy the house first. Buy the car later.”
4) Leave your bank accounts as they are.
Don’t move money around during the three months prior to or during your loan application, because doing so will complicate your loan file and require you to submit more documentation and letters of explanation.
5) Get the cash out of your home!
If you have money stashed in a home safe or hiding under the mattress, get that money into a bank account immediately. Cash is “poison money” and cannot be used for a home loan. The funds must be seasoned in your bank account for three months prior to loan approval.
Home Ownership is both emotionally and financially rewarding. Doing the work to get there is worth the effort.
Happy 2018, Everyone!
“Buy low, sell high.” We’ve all heard that stock market advice. So how does it apply to buying a home?
During the holidays, fewer home buyers are out there looking. People set aside this time for shopping, parties, travel, and celebration with family. They postpone their dream of becoming a home owner until after the New Year. Thus, December is the perfect time for YOU to make an offer on a home.
With less competition, you have a better chance of getting a Purchase Agreement at the seller’s best price.
My advice is to go for the home purchase now. You can set your closing date after Christmas when it is a convenient time for you to move.
First step: Get pre-approved for financing and obtain your pre-approval letter.
Second step: Contact your local real estate agent for help in locating a home and presenting the offer.
Best wishes and Merry Christmas!
With rising home prices and interest rates, it makes sense to buy a home now before real estate becomes more expensive. But what can you do when you don’t have the cash for a down payment or gift funds available? Here’s an idea that just might work for you.
Cash From Another Source
You can take out a loan using a car, recreational vehicle, collectibles, or other item of sufficient value for your down payment on a conventional loan.
You can borrow money from stocks, investments, a retirement account, or from a home equity line of credit from another property for your down payment on either a conventional or FHA loan.
You can borrow money from a family member (documented and recorded) for an FHA loan. Simply tell your loan officer up front if this is your plan, and then he or she will guide you through the steps.
As a Reminder…
Make your house a priority over your car/truck/SUV.
Real estate goes up in value. Vehicles go down in value.
Therefore, it makes no sense to take on payments for a vehicle before you get into your house. Do what’s most important first. Save the fancy wheels for later.
Thank you for reading! Any questions, let me know. I appreciate your comments and “likes.”
If you would like to become a home owner but know (or fear) that your credit will not qualify, here are some facts about getting an Federal Housing Admin (FHA) loan:
- Perfect credit is not required, but lenders prefer to see that you have been paying creditors on time for the past 12 months. That shows you have put difficulties of the past behind you and are now on track with your finances.
- You can get approved 24 months after a Chapter 7 bankruptcy is discharged.
- Medical collections can be ignored, because they are too often the fault of the insurance companies.
- Other collections, up to a total of $2,000, can be ignored.
- The down payment is 3.5 percent of the purchase price. If you don’t have the cash but have family who is willing to help with either a gift or a loan, that is allowed.
- Closing costs may be paid by you, by a family gift, or by the seller. Or, the lender can credit you toward closing costs in exchange for a higher interest rate.
- Most lenders require that your middle credit score is 580 or 600, depending on how strict they are.
Where Do You Get a FHA Loan?
You get a FHA loan through a mortgage lender. I recommend going to a full-service mortgage lender, because they have more options than a bank or credit union, often close faster, and because I work for a full-service mortgage lender and think they are the best!
What If Your Credit Doesn’t Qualify?
If your credit score is too low or if you have credit blemishes that need to be repaired, may I suggest a handy do-it-yourself guide that won’t cost you an arm-and-a-leg? Credit repair is legal and good folks are doing it and becoming home owners. For example, I am closing a loan for a lovely couple who got tired of paying high rent and will now own a three-bedroom home that includes a big garage with a workout room and half bath — with a smaller monthly payment than their rent. To check out the credit guide, click here.
Thank you for reading my blog. Please feel free to subscribe (see top right) and pass this info along via social media, because a lot of people think their credit is not good enough to buy a home when it is! Perfect credit is not required for home ownership!
According to a new study, 1 in 4 U.S. adults would like to buy
a house this year. Perhaps you or someone you know is among them, but having sufficient income is a concern. Here are some facts and tips that I hope will help.
Little Known Facts About Income Qualification for a Home Loan
1) With compensating factors, you can be approved for a higher debt-to-income ratio than what is posted.
Don’t get me wrong: I am not suggesting that anyone take on a mortgage payment they cannot afford. Nor am I suggesting that you become a slave to a mortgage. But you should know that the strict 41% or 43% debt ratio requirement is broken every day. With compensating factors, borrowers are getting approved for up to 49.9%. (This makes sense if there is a non-borrowing spouse who contributes income or if there is a secondary income that cannot be counted, because in reality, the debt ratio is much more reasonable.)
2) If you recently got a pay raise, you will qualify based on your new higher income, not last year’s W2.
Similarly, if you are offered a promotion, even if it is with another company, you are always free to take that (and switch companies if required) and still get pre-approved. That said, do not switch jobs in the middle of your loan process without first speaking with your loan officer.
3) You can have a co-signer to help qualify; just be aware that the co-signer must have credit equal to or better than yours and the co-signer will be on title as a co-owner.
4) If your auto loan has less than 10 months remaining, that payment will not be included. (Remind your loan officer in case he or she doesn’t notice this.)
Some Things to Be Aware Of
5) If you take a second, part-time job, you will need to be working at that part-time job for two years in order to include that income on your loan application.
6) If you pay off your credit cards in full each month (as you should), then the minimum payment required will be used for calculating your debt ratio.
7) If you are self-employed, do not take so many deductions that your Adjusted Gross Income does not qualify for the home loan you want. You cannot tell the IRS you make $40,000 and tell your mortgage lender you make $90,000. That is not how it works! You can’t have it both ways.
8) If your income has declined, the lender uses your new lower income, not the average income.
9) You cannot count the following as income: inheritance, gifts, winnings, gambling income, IRS refunds, or any other one-time, non-recurring income. However, you can use that money toward a down payment.
Don’t Give Up Your Dream!
If you want to become a home owner, don’t be like one person who said to me, “If I don’t get approved now, I’m going to spend all my money on a vacation.”
Instead, be like the person who said, “If I don’t get approved now, I’m going to do what it takes in order to get approved next time. Let me know what I need to do.”
Tips For Approval
10) Pay down your credit cards and then going forward, keep those balances low.
11) Go on a spending diet! Sacrifice now for a home, and you will build wealth in the long run. A good way to control spending is to stay off the buying websites and out of the stores. In other words, remove the temptation.
12) Fix the old car, don’t take on a new auto payment. Many people have been sad to learn that their auto payment prevents them from home ownership. Listen friend: a vehicle goes down in value while real estate goes up in value. Be smart and save your money for your piece of The American Dream and then you will increase your wealth through home ownership.
Thank you for reading my blog. Please feel free to share it on social media for others who could benefit from this information.
The best time to get a map is before you walk into the forest. Likewise, the best time to get your mortgage map is before you go shopping for a house. If you work the system backwards, you are setting yourself up for possible disaster.
Here is a simple checklist for home buyers:
Notice that you take care of the financing first, then the house shopping second.
1. Choose a lender by asking for a cost estimate worksheet.
This is your very first step. Not, go house hunting. Not, get pre-approved. And certainly not, make an offer! Why? Because, you don’t want to shop for houses that you are not qualified to buy, so you take care of your financing first. And, you don’t want multiple lenders pulling your credit report, so you choose your lender first. The way to choose a lender is to review the estimate worksheet and speak with the loan officer to ascertain how they answer your questions. (What to ask a loan officer is a topic for my next blog post.)
2. Get pre-approved for financing.
Now that you have your trusted loan officer, you are ready to have your credit report checked, provide your financial documents, and receive your official pre-approval letter.
3. Choose a Realtor.
I recommend working with a certified Realtor rather than a real estate agent, because a certified Realtor has gone through extra training and is held to a higher standard of ethics and work practices.
4. Go house hunting and make your offer.
Your Realtor will guide you through the offer and negotiations. Your loan officer will guide you through the financing.
Thank you for stopping by my blog. Feel free to share this simple list via social media and with others who are thinking of buying a home. You would not believe the horror stories I’ve heard from people who have run headfirst into disaster by signing purchase contracts before they had their financing approved. I hope to save more people from that situation!
Do you know someone who would love to stop renting and buy their own home? A new study says 79% of Millenials want to buy a house. This study, by Bloomberg, goes on to tell them they can’t save fast enough for a down payment. I am here to tell you that I disagree! Why?
Bloomberg’s chart shows how many years it takes to save 20 percent down.
But who says you have to make a large down payment? It is not required.
Here are tips for buying a house when you can’t save fast enough for Bloomberg.
- If your credit score is 720+, take a 3% down conventional loan.
- If your credit score is 580 – 719, take a 3.5% down FHA loan.
- If your family is able to give you gift money for a down payment, you’re ready to go.
- If you are a U.S. Veteran, you may qualify for zero down.
- Use one of the many down payment assistant programs offered by your state. For example, I have a program in WA that will cover your down payment plus kick in a little for closing costs. You can earn up to $97,000/year to qualify. When you sell the house (or refinance), you pay back the down payment out of the proceeds. This is an interest-free loan to help more people enjoy home ownership.
If home values continue to increase next year as fast (or nearly as fast) as they did in 2015, you are better off buying now than waiting until you can save for a larger down payment.
Also consider that home owners receive the best and biggest tax deduction available. Typically, a home owner can deduct the interest portion of their payment plus property taxes. This lowers their tax bracket, potentially saving significant taxes. (Speak with your CPA for tax advice.)
If credit score is your barrier, then pick up a copy of Repair Your Credit Like the Pros here and get to work. Earlier today, I heard from a lovely young woman in Ohio who followed the book’s directions and is now applying for a home loan. Yes, credit repair works! But you must do it properly, like the credit attorneys and certified credit professionals.
What barrier is keeping you from the American Dream? Post a comment (see top of this article) or send me an email here. I promise to reply.
How much have home values increased in the past year? Has real estate been a good investment?
If you are in Colorado, your home value has increased by 12.28% (on average).
If you purchased a $400,000 home with 5 percent down, your $20,000 investment has grown to an equity of $49,120. You have more than doubled your money in only one year! (Not cash in hand, but by wealth in real estate.)
$400,000 x 12.28% = $449,120 value
The Federal Housing Finance Agency has released this annual appreciate by state for 2015:
No one can predict what 2016 will bring. The best reason to buy a home is simply because you want to own the space where you live and sleep. You want to stop paying your landlord’s mortgage and pay your own. You want the joy of home ownership! In the meantime, if owning real estate also increases your personal wealth, then that is great, too.
If you are a real estate agent who would like to be on my Recommended list, send me an email here.
If you’re buying a home in California or Washington state, I would love to provide you with excellent pricing, no junk fees, and stellar service.