In the aftermath of 911 and the financial freefall of 2008, lenders (and legislators who regulate them) have become much more exacting in their requirements of borrowers.
It’s not enough to have great credit, money in the bank, and a long history of being an upright citizen. Like some kind of shy deer, lenders are easily spooked by things that would never occur to you, as a buyer, to worry about. And since loan applications can take months to finalize, it’s easy to make one of the mistakes below without a second thought.
So here’s a list of Dos and Don’ts to steer you through the loan process with as little stress as possible:
DO (continue to)
- Work for the same employer
- Live at your current residence
- Use the same insurance company
- Use credit cards normally
- Keep credit card balances below 40% of credit limits
- Stay current on existing accounts
- Make mortgage or rent payments on time (but you knew that!)
DON’T (without consulting first with your loan officer)
- Make a major purchase, like a car or boat
- Apply for new credit or loans of any kind
- Pay off collections or charge-offs
- Change bank accounts or banks
- Consolidate your debt into fewer accounts
- Deposit cash, or funds that can’t be traced
- Close credit card accounts
- Transfer balances from one account to another
- Plan a vacation during your loan transaction
What’s with these restrictions?
The lender wants to be able to see, clearly, that your money comes from approved sources. If you receive money from family, the lender will want verification of whether it’s a gift or loan. It’s also important to the bank to be able to assure regulators that you aren’t laundering money for terrorists or gangsters.
Why not consolidate debt or close down accounts while your loan is in process? Though it may seem like a good idea to you, these actions also complicates the bank’s ability to understand your financial picture. A better idea: make that job change or clean up your financial house before you begin looking at homes or applying for loans.
Sometimes your loan officer will advise you to pay off collections or change bank accounts; go ahead and follow your professional’s advice. And, obviously, if your car dies in the middle of the loan process, you can buy a new one. But talk to your loan officer first about the best way to go about it.
A whole lot less hassle
If you qualify for the loan, you’ll probably be able to get it even if you color outside these lines. But it may take longer, and it will certainly mean more paperwork and headaches on your part. If you have a hard deadline (like a settlement date) take these smart steps and bring it in on time.