
Indeed, the process of buying a house may interrupt your financial stability. Once you are pre-approved and into a contract, there are certain key things to avoid. An error at this stage can jeopardize your loan approval, and you may risk delays or even losing your dream home. Here are key things to watch out for while in the escrow process:
1. Don't make Big Purchases
Many buyers misinterpret that once they obtain a pre-approval for their mortgage, they're good to go financially. But the pre-approval is just one step in the game. In the contract phase, your credit is being watched. That means any big purchase, such as buying a car or expensive furniture, can change your debt-to-income ratio, thereby knocking you out of the scope of approval.
Lenders are mandated in an escrow process to ensure that your financial condition does not change. In cases of large purchases, this can cause the balances to change overnight, and the lenders will notice this and your loan may face a delay in approval, or worse, lower the qualified amount.
Keep your expenses level. Do not place any large items on your credit cards and avoid purchasing new major items such as an automobile or appliances until after closing.
2. Do Not Change Your Job
Another big mistake that homebuyers make is changing jobs during the contract period. Any change in your employment status during the processing of your mortgage will adversely affect your loan considerably. Lenders like stability, and a job change at this stage can create underwriting problems.
Even if the new job pays better, a spotty employment record with the new employer might give lenders pause. If a change in jobs is in the cards, it's wise to wait until your loan has been closed and you are at the closing table for your new home.
If you are not sure how a job change may affect your mortgage, discuss this with the loan officer first. He/she will advise you on several factors in your situation and tell you what risks may occur.
3. Be close to your Loan Officer
This is where your loan officer comes in-to ensure that the mortgage is processed smoothly for you. Your lender is a buffer between you and the underwriting team and ensures that your financial documents are well managed and presented in the best light to represent your qualifications.
If you anticipate any changes to your finances-for example, a decrease in pay or an elimination of bonuses or an unexpected expense such as car repair- inform your loan officer immediately. The lender can help you prepare ahead of time for how these changes may impact your pre-approval status.
4. Credit Monitoring
One interesting little-known fact with regard to the homebuying process is that lenders are checking your credit constantly during the escrow period. So even though you think your financial check might have been over once you received your pre-approval, it isn't. Lenders watch through the contract process to make sure nothing has changed that would affect your loan approval.
If your pre-approval occurs at the maximum amount for which you qualify, then the room for changes in credit is minimal. A slight adjustment from credit card company spikes in your balances can still affect your qualifying power to this mortgage.
For example, if you are pre-approved having a high debt-to-income ratio, any rise in your burden of debt can jeopardize that approval. And even when it seems small, please ask your loan officer for guidance before taking any financial step.
5. RSUs and Other Compensations Factors
In some cities, especially the high-tech hubs, RSUs are considered commonplace in terms of compensation. However, not many know how RSUs are treated during the mortgage process.
RSUs are shares of an employer's stock that are granted to employees. In some cases, they are granted a vesting schedule.
For qualifying for mortgages, the lender sometimes and sometimes not includes RSUs in its computation of income. If you have any type of RSUs or other forms of compensation, you should report them to your loan officer.
Not all income is equal when trying to secure a mortgage, and a professional loan officer will help you navigate the nuances of RSUs and other financial elements.
6. The Importance of Consistent Financial Behavior
In the months leading up to purchasing a home, your financial situation will be closely scrutinized. The pre-approval is simply a snapshot in time and, although you might feel once you receive it that you can rest now, reality is that your finances must remain consistent throughout the process.
Especially, avoid making major changes to spending, credit, or employment. A general rule is to keep your financial life as stable as possible until the loan is fully funded. Even seemingly well-taken decisions like buying a car or taking another job for more pay can upset the works.
Conclusion
Buying a home is exciting, but during the contract phase, it requires considerable care and attention to details. You will make it easy to close on your home by not making major purchases, keeping your job stable, and having open communication with the loan officer. Any change in financial situation can affect one's ability to mortgage; therefore, remain financially disciplined throughout the escrow process.
Following these tips, you should successfully close escrow without any surprise hitches.
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