Your client found the perfect home, secured financing, and signed the contract. They are happily popping champagne and picking out curtains.
Beware! While mortgage professionals dislike being "the heavy" there are several mortgage mistakes would-be homeowners make that causes a closing to go awry, or drives their interest rate higher.
Avoid these four mortgage mistakes so the joke won't be on you when closing is disrupted, delayed or ruined.
1. Change in job status
Stability is the name of the game during the mortgage process, and loan applicants better be ready. Changing jobs at such an important time gives everyone involved a case of nerves, as they may think the borrower's financial status is unstable.
A change in job status from part time to full time is fine, but not the other way around. Going from employee to contractor, or salary to commission, is just not a good move.
Moving to a better job with a higher salary won't torpedo the closing, but may delay it.
Changing positions within the same company is not likely to raise red flags as long as the salary doesn’t decrease.
Don't let the joke be on you: Talk with your clients up front, and tell them to contact you immediately if they are considering making a job change during the mortgage process.
2. Making late payments of any kind.
Payment historymakes up 35% of the credit score. It is the single most important factor in calculating score. Missing a payment, forgetting a payment, or just not making a payment during this time could cause serious problems. Just one late payment could dramatically decrease the score and knock your borrower out of getting his or her loan.
Don't let the joke be on you: Strongly urge borrowers to keep up with their payments, and make every effort to pay them on time or early.
3. Having too many unnecessary credit inquiries
Every time a lender makes a credit inquiry that requires pulling a credit report — it affects the credit score. Historically, increased inquiries equates to increased risk, which is why this is a component in FICO’s credit score calculation. Moving into a new home frequently tempts new homeowners to apply for store credit cards to save 10% to 20% on expensive items such as linens, furniture, and home décor.
Don't let the joke be on you: Advise your borrowers not to apply for any new credit accounts!
4. Taking on debt
The amount of debt makes up 30% of the credit score. It is almost as important as payment history. While the “no payment/no interest” furniture specials to fill a beautiful new home are compelling, these end up increasing debt, which can decrease the credit score. Furthermore, mortgage approval is also based on a debt to income ratio. These new purchases could throw that out of whack.
Don't let the joke be on you: Caution borrowers to wait until after closing to shop for these non-essential, major credit purchases.
Mortgage professionals should proactively advise clients that the first credit check run during the mortgage process won't be the last. Another credit check is performed just before closing. If there are negative changes on the credit report, they may be saying goodbye to the dream home.
Have a Happy April Fool's Day!