8 Ways To Accidentally “Un-Approve” Your Mortgage
For all the talk of how tough it can be to get approved lately, the basics haven't changed. Mortgage approvals are still a 3-legged stool of income, equity, and credit.
Have them in balance, and all else is good.
But, it's not always getting the mortgage approved that's hard. Sometimes, it's keeping the mortgage approved. You have to watch out for landmines.
Foreclosures Add "Approval Risk"
In today's market, mortgage approvals can be split into 2 groups.
The first group is those whose mortgages are reviewed and approved by just one bank -- in this case, the end-lender. It encompasses "traditional" purchases and refinances; ones that don't require third-party approval or sign-off.
Most mortgages meet this definition.
The other group of mortgage approvals does requires third-party sign-off -- often by the existing lender. Distressed property sales and short refis are two such examples.
Fundamentally, the mortgage approval process is the same between the two groups. The major difference is the physical sign-off by a third-party, and that's where home buyers can get trapped.
While Waiting For An Approval, Time Is Your Enemy
It could take up to 6 months to get to the closing table on a short sale or foreclosure depending on the speed of home appraisal, the amount of time required for bank sign-off, and other random factors (i.e. vacation time, furlough, miscommunications).
During those 6 months, a lot can happen.
You could lose your job, you could get sick, your home could be damaged by a storm. These are things beyond your control, but within the realm of possibility. Each could negate your mortgage approval, thereby kiboshing your deal and, potentially, resulting in the forfeiture of your earnest money.
The longer it takes to close, the more chance for catastrophe, of course. It's one of the reasons why buying bank-owned homes can be risky.
But beyond the things you can't control, there are things you can control. Mortgage approvals are fragile, living things and nothing's done until it's done.
With that in mind, here are 8 things you should absolutely not do between the date of application and the date of funding. I've been doing this long enough that I can say with certainty: Ignore these rules at your own peril.
Bad Mortgage Behavior, Defined
- Don't buy a new car or trade-up to a bigger lease
- Don't quit your job to change industries or start a new company
- Don't switch from a salaried job to a heavily-commissioned job
- Don't transfer large sums of money between bank accounts
- Don't forget to pay your bills -- even the ones in dispute
- Don't open new credit cards -- even if you're getting 20% off
- Don't accept a cash gift without filing the proper "gift" paperwork
- Don't make random, undocumented deposits into your bank account
Now, it may be impractical to have follow every rule to the letter. I know that. For example, if your car lease is expiring, you have to do what you have to do. But before renewing the lease, check with your loan officer to see if renting a car for the short-term might be a more mortgage-friendly solution instead.
The same goes for accepting cash gifts from parents. There's a right way and a wrong way to accept a cash gift and, if you do it the "wrong way", you may not get to use the gift as part of your downpayment funds.
There are a bevy of "gotchas" in Mortgageland and you can't expect to know them all. These 8 rules, however, are a good start.
Get Low, Long-Term, Locked Mortgage Rates
If you're in the process of buying a foreclosure or short sale, you're going to want a strong mortgage approval that's written on bank letterhead, and strong rate-locking advice, too. It's what I do best.
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About the Author
Shawn Kaplan is an active, multi-state Licensed loan officer with Access National Mortgage.
