8 financial mishaps during home loan applications and escrow
As a former banker, the lending side of real estate is near and dear to my heart. While searching for a San Diego home and going through the financial vetting process, you may be tempted to make certain purchases, transfer funds or open a new credit card. But first, pause and think. There are many consequences to your actions during this time, since you’re in the market for the biggest investment of your life. Below are some key financial mishaps to avoid during the loan application process and escrow, because even innocent actions can affect your credit, cash flow and home loan funds you’ll qualify for.
1. Don't buy or lease a new car
Debt ratios are one of the first things lenders review. Cars and other large purchases can greatly affect the ratios and negatively impact the home loan amount you qualify for. So, financing $20,000 for a new car may not seem like a lot of money compared to the cost of a house, but it can be the difference between qualifying for an ideal home versus a dream home.
2. Don't move assets from one bank account to another
Large or out-of-the-ordinary money transfers look suspicious to a lending bank. Many times, they require funds to be seasoned (held in your account for at least 2 months), or they may ask for proof of origin if new, unexpected funds appear in your account.
3. Don't change your job
Income is another key item that lenders rely on. If you’re thinking of switching jobs during the home search, you may want to stay put for a few more months until you have purchased a home. Most companies have a several-month probationary period for new employees, which means lenders may not be able to include that income until the period is over.
4. Don't buy new furniture or major appliances for your new home
Hold off until you’re officially moved in. These types of purchases will either increase debt, or decrease cash reserves, both of which lenders review.
5. Don't use your credit cards unnecessarily
Only use credit cards for normal purchases. New credit reports are ordered at the close of escrow, so any big or unusual purchases are a red flag that can affect the report and overall credit score. In fact, it’s best to pay off or pay down credit cards to help you qualify for a better home loan amount.
6. Don't ignore who runs your credit
Be aware: if there are multiple credit inquiries tied to your name, lenders may require written justification or explanation of them.
7. Don't attempt to consolidate bills
Similar to transferring assets, transferring debt may also cause lending issues. While advertisements boasting "get out of debt fast" sound amazing, they are often too good to be true in the fine print. It’s best to discuss this with your lender first before reaching out to credit consolidation companies.
8. Don't pack or ship information needed for the loan application
Purchasing a home and getting ready to move can be a stressful time, but don’t accidentally pack important loan documents such as tax returns, pay stubs, divorce decrees and other paperwork during the hustle and bustle. The lender and/or escrow company may request documentation at any moment, so it’s wise to keep a folder with your personal (and necessary) documents handy.
If you have lending questions or need real estate advice to purchase or sell a home in San Diego County, email or call Michael Biondo at 619-993-9559 to get started.