If you think that saving up for a down payment and meticulously keeping your credit file in good order was a chore, the home buying process has only begun. After people prepare for a mortgage, they begin to make a lot of plans regarding their soon-to-change future. Much of what they do jeopardizes their chance for closing on their chosen property.
What most home buyers don’t know it is the process extends past the pre-approval, pre qualification, and final approval of a home loan. Just because a lender gives you a figure that reflects how much they are willing to loan you, doesn’t mean they aren’t watching as settlement day draws near. Banks are still in a state of recovery, having to endure hundreds of millions of dollars and defaulted business loans, home equity loans, first and second mortgages, student loans, lines of credit, and other types of debt instruments left unpaid by borrowers.
Having to deal with a wave of new federal banking regulations, lenders are in a precarious position. These financial institutions want to add more business to their books, however, doing so involves the risk of loss. It’s for these reasons that lending standards have become stricter and down payments are a necessary part of securing a home alone. Simply put, banks are quite proactive about monitoring their borrowers’ finances right up to closings.
The Home Loan Process
It used to be that banks would review a borrower’s application, check their credit file, and look at the applicant’s overall finances, then send the package to an underwriter. Once approved by the underwriter, the package then moved to the entity handling the closing. However, there’s been a few changes in the mortgage approval and settlement process.
Lenders are taking steps to try and ensure they are not the vulnerable in the way they were in the run-up to the housing crash. Back then, lenders were under heavy pressure by congressional members to make mortgages more accessible to more people.
A huge demand quickly ensued and the “stated income” mortgage took on a life of its own. In a very short time, lenders were approving loans and record rates, which caused home prices to skyrocket. Everyone knows, the housing bubble eventually burst and now lenders are quite careful about the borrowers they deem to be an acceptable risk. Enter two relatively new practices, the soft credit check; and, identity theft monitoring.
How Homebuyers Derail their Deals
If you found the right home and the seller has accepted your offer, the home appraisal is just one thing to worry about. Here are some ways home buyers actually sabotage their pending purchases.
- Emptying bank accounts. Lenders are not keen about home buyers that empty out their accounts, especially borrowers who are responsible for paying part or all of the closing costs.
- New lines of unused credit. Some borrowers make the mistake of opening new credit accounts to use in the not-too-distant future for things like home improvements or furniture. This represents potential debt which can have a negative impact on the borrower’s debt-to-income ratio.
- Big ticket purchases. Some home buyers feel like seizing the opportunity of their purchase to improve their lives by purchasing things like cars. This too, has an adverse impact on their debt-to-income ratios.
Last, but certainly not least, is changing jobs. Though a job change might mean more opportunity, to a lender, it hurts one of the key factors in approving the loan in the first place.