Problems to avoid AFTER you apply

By William Kugel

After weeks of looking and anticipation, you've found a new home. Your offer has been accepted. You've applied and been approved for your new financing. It's time to celebrate, isn't it? Not really. But, if you do, do it discretely and avoid the mistakes I discuss below. In this article I will share some of the potential mistakes to avoid AFTER you apply for a mortgage that can interfere with your loan process before you close on your new financing. Changing jobs: I won't say that changing your job will absolutely kill your financing, but it can. You need to be prudent about job changes and more importantly you need to clue in your loan officer about what you are planning to do before hand. In many types of loan processing a telephone verification of employment is used. Many mortgage companies do this within the last week before your closing as a quality control measure. If your loan has been approved on the basis of any combination of employment for any of the applicants and a last minute telephone verification of employment turns up "He (or she) no longer works here," your financing can come to a screeching halt. The guidelines for employment and their impact on your loan approval can vary from lender to lender and from loan program to loan program. Individual circumstances are also important. There are so many possible scenarios that if I had to judge the impact of a job change, it would have to be on a case-by-case basis. Job stability can be more of a factor in government loan programs than conventional financing. One month on a job may not be a problem in loans with automated underwriting or in situations where it is an obvious extension of the same type of work you were doing previously. And, in cases where you are relocating at great distances, job changes are often unavoidable. In fact, when relocating it is often necessary to get qualified on the basis of the job you will hold AFTER you have relocated. In these circumstances it is important to line up your future employment well in advance. You will need to discuss with your loan officer what documentation will be needed for the type of loan you are obtaining. Some require a pay stub proving you are at the new job. This can range from one week to at least a month. Sometimes a letter of intent or hiring letter will be accepted if it provides the details of your compensation and the date you will officially begin working. Whatever your circumstances if a job change is on your horizon, it is imperative you coordinate your changeover with your lender. Taking on new debt: It is amazing how many applicants go out and buy or lease a new car right after they are told they are approved for their next mortgage. In addition, there are so many things that will be needed for the move and the new home. Or you are pursuing a construction loan but start borrowing or spending before your loans are finalized. What's the problem? There are really two: your debt-to-income ratios and your credit scores. Not all borrowers have either of these problems but many are near the edge in one or the other arena. Debt-to-income ratio guidelines are in place on most loan programs and if you take on new debt after your loan is approved you may upset the apple cart. A common quality control procedure in most mortgage companies is to check your credit again just before closing on your loan. The additional debt may be noticed and your ratios may be recalculated. Also, your credit scores may drop and in turn this can affect your approval, especially in processing systems that utilize automated underwriting. For this reason you should also avoid any additional credit inquiries from being added to your credit history until after you have moved into your new home. A few more don'ts: Here are some additional suggestions. Don't pack or ship or lose access to your financial records too soon. Just because you receive an initial approval on your application doesn't mean that you may not be asked to produce additional items later on like bank statements, pay stubs, W-2s, a tax return from a previous year or different entity, a canceled check, a credit card statement, or a closing statement from another closing. Also, avoid disconnecting phones that may have been on your application that will be used to contact you or verify your information. Another thing that can interfere with an application is other applications or title searches that turn up. It is usually unwise to also attempt to buy another property at the same time. Likewise, if you are refinancing a primary residence while buying a second home, your ability to document your present housing expenses will be complicated. Keep in mind the kinds of circumstances that can cause problems are highly individual. What could be a problem for some will not be for others. These are merely suggestions and not hard and fast rules. But when applying for a mortgage, it is important to bring up and discuss any potential changes that are likely to occur while your loan is being processed with your lender. William Kugel is author of the column MORTGAGE$ in publication for 13 years, a senior loan officer with GMAC Mortgage Corp., and a Mount Washington Valley resident. You may write him c/o of The Conway Daily Sun, visit the Web site www.gmacm.net/william_kugel or send e-mail to william_kugel@gmacm.com.All Rights Reserved. Copyright 2003, W.H. Kugel.