The Do's & Don'ts of Mortgage Lending
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If I could have snapshotted this situation and used it as a poster child for what NOT to do when buying a home, I would most have definitely used this couple's situation. Bless their hearts, they didn't know. But let me tell you, the hoops I had to jump through and the ridiculous amount of documentation that had to be produced just about sent us all over the edge. I'm pretty sure we all looked like a pack of wet dogs by the end of it.
In a nutshell, here are the things that caused the mortgage process to go from what could have been easy and quick, to drawn out and complex:
1) They had tons of cash deposits. There were undocumented cash deposits. Payroll deposits are not considered undocumented. These cash deposits would be gifts from relatives, sale of cars or other assets, services provided etc. ALL of these things must be adequately sourced. If you receive cash sums of money, make sure you that you document them with the appropriate forms and an easy-to-follow trail. Think of yourself as a detective and make sure you have everything in the file needed to document the money coming into your account.
2) They bought a car. So here's the deal......lenders typically get alerts from the credit bureaus when a new credit pull occurs. What does that mean? If you move forward in the mortgage process with a current lender, they will be notified of any activity on your credit, in terms of potential new credit requests. I had another borrower that thought they could get away with buying a new car while we were processing their request to refinance their house. Can you guess what happened?? The new car payment significantly impacted their debt-to-income ratio, and they were no longer eligible to refinance their house. Yikes! All of this to say: DO NOT, under any circumstances, buy anything or charge up a credit card while you are in the processing of buying a home!
3) There were difficulties verifying income. This honestly was not the borrower's fault, but it did cause a huge delay in closing. We had to make repeated attempts to get the employer to return phone calls and emails so we could verify income. Unfortunately, sometimes this kind of thing just happens, which is why everyone involved in the transaction needs to be patient and flexible. The only option here to have expedited this is to have started the process with the employer sooner. It's possible the borrower could have gotten involved sooner and worked on getting us a contact person at the very beginning. To avoid this in your situation, make sure you have the correct HR person, supervisor or payroll contact information for the lender. Sometimes we are able to get this information using a third-party company. However, sometimes further information is needed, and we must deal directly with the employer.
4) They waited too long to transfer gift funds. This caused a delay in closing. When getting gift funds, you will want to initiate that process as quickly as possible. The easiest way to accomplish this is to have the donor wire their funds directly to title. The lender gets a copy of the gift letter, wire receipt from title and bank statement from the donor. This is much easier than the donor sending the funds to the borrower-that just creates another step and requires even more documentation. The timing of this is important. Once the option period is up and the inspection cleared, have the donor send the funds to title where it is held in escrow until closing. If for some reason the loan doesn't close, the title company will send the funds back to the donor.
The same type of thing applies to money being moved from a retirement account or investment account for closing. You will want to get that money moved early on in the process, and for heaven's sake, keep all of the documentation to prove it.
There are many more tips I can give on buying a home and how to make that easy, but I don't want to write a book!
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