Mortgage Financing

When it comes to financing the purchase of your property there are different loan types to consider.

 

  • Conventional Loans
  • Jumbo Loans
  • Government Insured Loans
  • Conventional Loans with Private Mortgage Insurance (PMI)
  • Home Equity Line of Credit

 

 

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When applying for a mortgage, before you close on your home, your mortgage lender/broker will tell you the same thing, but the lender will re-pull credit a day or two before closing to make sure your financial situation has not dramatically changed.

Avoid these things before closing to prevent a delay in closing and many headaches:

  • Change Jobs – the lender will call the HR department for a Verification of Employment right before closing – if you are no longer working there, your loan may not get approved. If you took a job promotion in the same line of work with another company, you would still probably be able to obtain a mortgage approval, but the lender will require time to verify the new job and income and it could cause delays in closing.
  • Increase debts or apply for new credit – you are pre-approved based on your overall financial picture at time of application. If you take on a new car payment or boat payment, your debt ratios change and you may have to re-apply and go through underwriting a second time to ensure your debt ratios are still within the approval guidelines per lender requirements
  • Move money without a paper trail – If you make unusually large deposit or withdrawal, it could raise red flags. The underwriter may think you took out a loan somewhere else with the large withdrawal and a large deposit may appear to be borrowed money.  If you have recently sold something, you can provide a bill of sale and these assets would qualify.  It’s best not to have any unusual deposits or withdrawals.  A letter of explanation along with proof of where the money came from or went may be required
  • Skip a payment or make a late payment – this will adversely affect your credit score. Your interest rate is, in part, determined by your credit score. Lenders will offer a better rate to higher credit scores and if your rate increases, so with your debt ratios which could make you ineligible if you are on the border.  Do not miss any payments!
  • Spend your savings – part of the underwriter’s decision is based on assets available after closing. Ideally, you want 6 months in PITI (Principal Interest Taxes Insurance) reserves available after closing. Most loans are approved with 2 months PITI reserves, but if you spend your savings, it could affect your PITI reserve requirement, and you could possibly become ineligible for the loan
  • Buy big-ticket items – this may change your financial picture and could change your debt ratios if you purchase something on credit which would require your mortgage application to be underwritten again
  • Closing out a line of credit – this seems contrary to what you should do, but part of your credit score is based on the aggregate balance against the aggregate available credit. If you close out a card, your aggregate percentage is higher with less available credit.  Most accounts take 60 days to update, so it may not matter, but best not to make changes with credit cards during a loan application.