by Dian Hymer
Imagine this. You finally find the home you want after hunting for months. You negotiate a fair price and apply for a mortgage. The property passes inspections with flying colors and your loan is approved without a hitch.
A couple of weeks before closing, you spend a Saturday shopping for furniture for your new home. Fortunately, the furniture store has a purchase plan that allows you to pay for it over time.
But the week before closing, your loan originator calls to tell you that your loan has been denied. Your outrage is followed by despair. You were already approved, you complain. How could this happen?
When a home mortgage is approved, it 's usually approved with a list of conditions. A common condition is that the lender can reverify your credit, income, assets and employment anytime. In this case, the lender can cancel a loan commitment if there is an adverse change in the borrower's finances.
Lenders run credit checks on prospective borrowers before they approve a mortgage. They also routinely run another credit check just before they issue the mortgage money to close the sale. If this last minute credit check turns up a "red flag" it could change the status of the borrower's loan commitment.
When you buy a big-ticket item on time, like furniture or a car, the vendor usually runs a credit check. This check shows up on your credit report as an inquiry. An inquiry is a "red flag" to your mortgage lender. If after investigating the nature of the inquiry, the lender decides you're too highly leveraged, your loan could be denied.
Moving your down payment and closing cost money from one institution to another during the purchase process can also cause mortgage approval or closing problems. Lenders need to document all your closing money before they'll grant a mortgage. They usually want to verify that your money has been in the same account for 3 months. Also, changing jobs during your home purchase can throw a monkey wrench into your loan approval.
First Time Tip: You can avoid mortgage approval problems by being completely forthcoming with your loan agent or mortgage broker from the beginning. Let your loan originator know the precise source of your down payment money. If you've had credit problems in the past, be up-front about it.
Don't make any changes to your financial situation without first discussing it with your loan originator. For example, suppose your father is giving you a $10,000 gift for part of your down payment. Your loan is approved on this basis. Before closing a good friend repays you $10,000, so you no longer need money from your father.
However, to close with the mortgage you were approved for, you need to give the lender a gift letter from your father and proof that your father liquidated assets to give you $10,000. The lender will also want proof that you received the money from your father, not from someone else.
If your father is no longer giving you money for your down payment, you need to get approval from the lender to restructure the financing. This means you must provide more documentation for the lender's underwriter to review and approve.
The Closing: These requirements may seem ridiculous, but lenders want to make sure you're not borrowing the down payment money. If this were the case, you might be too highly leveraged in the lender's eyes. A gift doesn't have to be repaid, so it doesn't put additional financial burden on the borrower.
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