Buyer DO's and DON'Ts

1.  Do get Preapproved for a loan before making an offer to purchase a home.   Often buyers like to go shopping first and worry about the financing later.   However, it makes little sense to shop without knowing your price point.   It can be very disheartening to set your heart on purchasing a home priced at $400,000, only to discover that you only qualify for a $200,000 home.

2.  Look at your budget and determine what payment YOU are comfortable with.   There may be a big difference between the payment that you can be approved for and the payment you think you can live with.  Analysis of your credit profile does not tell the whole story about your life style.   So have in mind a number that you think you can comfortably live with.   Your loan officer will than be able to work the numbers for you to determine your target home price.

3.  Be completely truthful with your Loan Officer.   The process of underwriting a loan if quite thorough in investgating income, assets, credit, etc.  For example, don't indicate that you have been on your job for 2 years when it has only been 1 year and 10 months.   Those two months can make a difference in the income used for qualifying purposes.   Unless you have been at your current job for two full years, overtime pay can not be included when figuring your monthly income.

4.  Provide requested paperwork in a timely manner.   Underwriting decisions are not instantaneous upon presentation of your documentation.   We all like to think that our loan is the only credit file the underwriters are working on.   This just is not the case.  Depending on the backlog of work, underwriting or condition sign offs can take from 1 day to over a week.  Delays in delivering the documentation requested by your loan officer can cause delays in closing and may lead to higher costs for you in the long run.

5.  Make a list of Must Haves and Like to Haves.   Looking at lots of homes that don't fit your basic needs can be exhausting.   It is better to limit the home viewings up front by making sure the homes you preview have your minimum requirements.   For example, maybe you must have a 3 bedroom, 2 bath.  If that is the case, there is no point in looking at homes that are 3 bedroom, 1 bath.  

Buyer Don'ts

Buying a home can be so exciting that many new homebuyers can't wait to start buying things to fill their home with as soon as the seller accepts their purchase offer and the lender pre-approves their loan.  But having an accepted purchase contract and a loan preapproval does not guarantee that the sale will close.   There are things buyers innocently do not realizing their actions could cause the lender to withdraw their preapproval.

1.  Do NOT make any expensive purchase.  While the excitement of buyer a new home is high, avoid the temptation to give in to buying new furniture, a new car or financing an expensive vacation on a credit card (or any other expensive purchase).    As the escrow period for your home purchase moves forward, the lender may need to pull a new credit report.  A new purchase may affect your credit scores or change your debt ratios.  Or the underwriter may ask for updated bank statements only to find that your accounts no longer have the reserves required by the loan.  Your approval for a home loan is based on the information provided.  If that information should change, the preapproval may be withdrawn.  It is best to hold off on those purchases until after the home purchase closes.

2.  Do NOT get a new job or quit the one you have.   Lenders like to see a consistent job history. Generally, changing jobs will not affect your ability to qualify for a mortgage loan - especially if you are going to be making more money. However, if you need your overtime to be counted as part of your income to qualify, changes jobs will eliminate the ability to count over time pay in your income.  In fact, overtime income can only be counted as income if you have been employed at your current job for a full 2 years.   Also, lenders will be verifying your employment right before they fund the loan.  If they call and you are no longer employed with the company shown on your loan application, the loan will not fund.  

3.  Do NOT switch banks or move money around.   When your credit file is underwritten, 2-3 months of checking and savings statements are required.   If your down payment and closing cost money is coming from another asset account, you will need to provide statements for those accounts as well.   Any movement of funds must be tracked dollar for dollar.   That means if you take a withdrawal of $5000 from one account, the amount deposited in the receiving accounts must also be $5000 (not $4999, not $5001).  To eliminate potential fraud, most loans require a thorough paper trail to document the source of all funds. Changing banks or transferring money to another account - even if its just to consolidate funds - could make it difficult for the lender to document your funds.   If you don't want to spend you time chasing down documentation to prove the movement of funds, it is better just to leave the funds as they are.

4.   Don't give a good faith deposit directly to the seller in a FSBO purchase. As a rule, your good faith deposit belongs to you, not to the seller, until the deal closes. Your FSBO seller may not know that your good faith funds should be applied to your expenses at closing. Get an attorney or other neutral party (in California you will want to use an escrow company) who can hold the deposit or put it in a trust account until you close on the home. Your purchase contract should dictate to whom the funds go should the transaction fall through.

5.  Don't disregard your lenders requirements. You may have been pre-approved for the loan but your work with the lender is far from over. In order to process your loan, you need to meet certain requirements. While the requests may seem crazy to you, once your loan is funded it is immediately sold on the secondary market.   The companies that purchase the loans have certain documentation requirements that must be in the file before they will purchase the loan.   The lender does not want to get stuck with a loan they can not sell, so if all the paperwork is not in order, they just will not fund the loan.   Keep anything you think you might possibly need easily accessable during the loan process.   In addition to the stardard paperwork that your loan officer requests up front (paystubs, W2s, tax returns, bank statements, etc), have your legal paperwork for a divorce, a bankruptcy, information about other homes you may own easy to get to in case the lender has a questions that need answering.  Failure to submit certain qualifying documents could cause you to lose your loan and the financing you need to buy your home.