Getting a mortgage can be no small task. These days, borrowers have to meet stringent income and credit requirements to get a lender to finance their new home. But even with proper documentation and a stellar credit score, the process can go awry.
5 things that can kill your mortgage application
1. You co-mingle extra family funding
Let's say your family is helping you buy your home. Many borrowers may instruct their relatives to send the funds directly to their personal checking account -- the same one you pay your monthly bills out of. But doing so can look on paper as though you are spending your down payment. The least path of resistance approach could be to have your family benefactor wire the funds directly into escrow. The escrow company is required to hold these gifts for you until closing, at which point those funds become a credit against your cash to close.
2. You try to pay with undocumented cash
It may be a good idea to keep any cash from "side jobs" out of the loan process. Undocumented money cannot be used towards income verification or a down payment. The bank will ignore any funds that are not substantiated. They do not readily make loans to mortgage borrowers who deal primarily in cash.
3. You continue to apply for credit
Once you have picked a mortgage company and begun the loan process, it's best to stop shopping around for other types of credit. Even if you get a great credit offer, such as an auto loan with interest-free financing or a 0% balance transfer credit card offer, applying for credit (or worse, taking on new debt not previously disclosed to your mortgage lender) could negatively impact your loan. It's better to go credit-dark by not opening any new accounts.
You may also want to refrain from closing and/or disputing any credit accounts without the guidance of your loan professional. You can check your credit report for free once a year at AnnualCreditReport.com or see your credit scores for free each month on Credit.com to see how your credit applications are affecting you.
4. You don’t respond to your lender’s requests
Lenders understand you are busy, but so is everyone else. Moreover, you should try to manage your time accordingly to account for taking on what could be the largest liability of your life. Timely, regular communication within the mortgage loan process is crucial especially if you've decided to lock in your interest rate.
A mortgage rate lock commitment is usually good for 30-to-45 days, sometimes longer depending on circumstances. This means the clock begins ticking from the time you agree to the offer and you could wind up paying thousands of dollars in extension fees if you take too long to provide the necessary paperwork.
As a side note some mortgage companies do not allow you to extend your interest rate lock, but rather force you to take worst-case market pricing. You may want to ask about your lender's rate lock policy before you apply for the loan.
5. You can’t or won’t provide additional documentation
Every single residential mortgage loan entails submitting an application and financial documentation to an underwriter for review. Every reviewed loan comes out approved with conditions or suspended (needing more information or a change before final approval).
These conditions might involve explaining previous addresses, providing updated pay stubs, or requesting employment verification, but there could be many different reasons why an underwriter needs to see more. Lending is pretty specific in terms of qualifying. More often than not, refusing to provide additional documentation or turning over documents the lender did not specifically ask for makes the mortgage process take longer and causes more stress and frustration for both parties.
Simply put, if the lender is asking for something, it may be easiest to provide it in lieu of fighting the request or providing some other form of documentation that is likely to prove insufficient.
Overall, it's often best to acknowledge there could be things requested in the loan process that seem annoying, frustrating, redundant or tedious. However, getting information back to the lender within 48 business hours helps meet your closing time frames.