You have done everything right up to this point! You checked your credit, kept inquiries and new accounts to a minimum, you saved money for down and closing costs, you have had consistent employment and are making sufficient income compared to your debt, you have diligently kept your paperwork and acceptable explanations for anything unique, you have found the mortgage advisor you want to partner with and have an accepted offer on a home of your dreams! What could go wrong?Verify my mortgage eligibility (Feb 29th, 2024)
Ask any professional in the Real Estate Industry and they can likely tell you a story about a well-qualified buyer that ended up falling out of escrow. Falling out of escrow is a term used to refer to a home under contract with an agreement between buyer and seller, but something changes, and the contracted offer cannot proceed as is. This can easily be a change in the buyer's ability to qualify even after a successful pre-approval and qualified loan review.
So how do you, a well-qualified buyer avoid the potential of being denied your loan after all of your correct steps and efforts? I will keep it simple to start, whatever the details of your qualifying is DON'T change anything until the keys are in your hand and the deed is recorded! But what does this really mean?
Your loan application and qualifying details will go through several steps in the loan process in which your qualifying factors are being reviewed, compared to guidelines requirements for your loan and property. The first is with your loan officer during your pre-qualification or pre-approval phase, ideally before you even begin house shopping. The second time is when you find a property and make an offer to ensure that the loan initially set up works with the terms of the offer, again when your offer is accepted, and you are now under contract for the purchase. Each review is to ensure any further negotiated terms do not change your qualifying. This is 3 reviews of your qualifying before you have even begun with the formal approvals from the lender that will fund your new home loan.
Now that you are under contract, your application for that specific home becomes official and your new estimated loan terms are disclosed. Your loan package goes to a Processor for review and then to an Underwriter, each of these parties again reviewing the details of your qualification and obtaining necessary verifications to document the accuracy of the information. This can include, but is not limited to employment, bank assets, tax returns, debts, etc. Once the Underwriter has reviewed your file, they will either deny, suspend, or conditionally approve your loan application. This is likely weeks after your first were approved by your loan officer and weeks still before your keys are in hand. All of this time it is critical that your qualifying details do not change… that is unless you and your loan officer make decisions together that will be acceptable to your situation. Updated documentation will be requested as well to ensure that what is provided is always the most current dated items. The final verification of your qualifying information comes within the last 24 hrs of closing. Potential verbal verification of employment, soft pull review of your credit report, binding of your insurance policy and more. If anything has changed, your application and qualifying terms are no longer the same and have to be updated then go back through the process of approval. You may be asking yourself why, or how this would happen to someone? Here are some common examples: applying for new credit thinking it would not matter because you already were approved. That new card, new furniture, appliances for the house, 0% transfer balance offer…etc. They all need to wait until your keys are in your hand! Those low balances on cards you already have, you may think because it is not a new account you can use it for the purchases instead- surely you can use credit you already have? NO, the higher balance will create a higher payment and can change your qualifying debt to income ratio. Surely, I can trade in a car with a higher payment and get a different one? Perhaps it will not disqualify you but if your loan officer doesn't know and does not have all the documentation necessary for the sale and purchase, you just delayed your closing until they do! New job offers? Promotion, raise, etc… all great news! BUT make sure your loan officer knows so that the change can be documented and verified properly so there is no delay or change to your approval. Suspension, job loss… yes that can make things go wrong even after your official approval. Giving notice? Yes, that too. Often a verbal verification happens within the final day or two and if that employer tells the verifying party that you gave notice, you no longer have that qualifying income. You had a big yard sale preparing to move and deposited a large amount of cash, prepare for a delay in your closing if you have not documented it for your loan officer.
So, as you can see, every part of your qualifying application matters up until the moment keys are in your hand and the new deed is recorded. Keeping all your qualifying factors status quo up until your purchase is closed or discuss any necessary changes with your loan officer before anything changes so you can prepare is the key to avoiding anything going wrong or delaying the process. The celebration of owning your new home will be worth it!Show me today's rates (Feb 29th, 2024)