Once your loan application is submitted, the application is documented with some personal financial information from you such as paycheck stubs and/or tax returns, bank statements and W2 forms. In addition to your personal information, various third party services are ordered in preparation for submitting the application for an approval. The loan application is reviewed “as is” meaning the information appearing on the application is valid at the time it was completed. If things change while the loan is being processed, there can be some delays as the new information is documented and verified. To make sure there are no delays, avoid doing these five things.
How to Keep Your Loan Application on Track
Top 5 Things to Avoid
Changing jobs. Applicants are asked to not make any significant changes in their overall employment picture. One of the primary functions lenders perform is making sure there is enough monthly income in an account that can handle the payments. This is typically performed by reviewing copies of the most recent paycheck stubs covering a 30 day period. This is the amount used to determine affordability. When someone begins a loan application and submits paycheck stubs and W2s then shortly thereafter find another employer during that period, those paycheck stubs are no longer any good. Plus, it will take at least another 30 days to obtain paycheck stubs from the new employer. Even if the new job pays more, don’t leave one employer to go to another. Wait.
Borrowing money for the transaction. Lenders will verify not only that you have enough money for a down payment, closing costs and cash reserve requirements but that those funds belong to you. Once your loan application is started, your submitted account statements where these funds are coming from should have your name on them. If there is another name, other than a spouse, such as a parent or a friend, you’ll only be awarded half those funds, assuming the other party named on the statements has an equal interest and ownership of those funds. Funds in an account should also be “seasoned” meaning they’ve been in the account for a while. Most lenders assume if an account has a balance showing sufficient funds to close for at least 3 months to be yours. Borrowing money to close implies monthly payments to the donor at some point in the future, which will directly affect your ability to repay. And this affects your loan application.
Opening a new loan. This is emphasized at the outset. Don’t apply for a new credit account of any type once your loan application is in process. This will stop the lender from moving any further. How does a lender know someone has applied for new credit? Many may not be aware that lenders not only review a credit report upfront but also make one final review immediately prior to funding the loan. Why? As a loan application is being reviewed, a new request for credit will show up on a credit report. Even if no new account was taken, a record of a recent credit request will be listed. The lender will see this new request and stop everything until more information is known about the inquiry. Is there a new loan taken out? If so, what are the monthly payments? How much is being borrowed? A credit inquiry won’t have any of this information on the credit report but it will raise a red flag during the approval process.
Tracking funds. This issue can come up when a borrower receives a financial gift from a family member or qualified source but is not documented as a financial gift…it just shows up in the applicant’s account. Just as borrowed funds can be an issue, so too can undocumented dollars when it comes to your loan application. If planning on receiving a financial gift to help out with the purchase, the gift funds need to be documented from the donor to the applicant. As well, a financial gift letter should be completed from the donors stating the transferred funds are a gift and there is no expectation of being repaid.
A Final Word on Appraisals
Valuation issues. This can be a problem when the sales price and the appraisal value don’t match for a loan application that is in process. When an appraiser first reviews a property, a copy of the sales contract is provided. The appraiser uses this information as a starting point to arrive at a final value. Most often, these two amounts are the same. If however, the sales price is higher than the appraised value, the borrowers are asked to come to the closing table with the difference. Most often than not, borrowers decide not to pay the extra funds. In this instance, the buyers and sellers may elect to renegotiate the sales price.