With a never ending list of everything you ‘should do’ when purchasing a home, it’s important to be aware of the ‘don’ts’ as well, especially when it comes to financing. It may seem obvious to not do certain things like switching your job or co-signing a loan, but how often have we been told that depositing cash or financing a new piece of furniture could affect our ability to get a mortgage? Here are a list of things to avoid when searching for and closing on a new home:
#1 Don’t simply take the past of least resistance when it comes to loan preapproval
The list of internet-based mortgage lenders promising to ‘disrupt’ the mortgage industry is long. There’s no need to go down it. Large banks who have underwriting departments specifically geared toward cooperative lending will ultimately provide a much better customer service experience for a coop buyer, and will be looked on more favorably by coop boards. National, non NY-based lenders may not even know what a coop is, or have no experience with vertical housing. We don’t want to get into contract only to risk the deal because our lender insists on seeing the ‘deed’ for the coop, or on holding you to a minimum liability flood insurance policy for your apartment… located on the 12th floor. Additionally, get a banker referral from your real estate agent! Although large banks like Chase and Citi will have underwriting departments geared toward coops, calling their 1-800 number and asking to speak with a mortgage banker in New York may connect you with someone in Buffalo, and the banker covering floor duty in your local branch when you happen to walk in may or may not be any good.
#2 Don’t try to upstage the listing agent
I’ve seen buyers try to gain leverage in negotiations by pointing out inconsistencies in information the listing agent has provided, or by pointing out the home’s physical defects. This has the opposite effect. Apart from the amount of our offer and other tangible terms on paper, the listing agent is gauging how easy to deal with we’re likely to be when negotiating a contract and prepping a board package. This process starts as soon as we walk in the door at our first showing! In a competitive bidding situation, trying to one-up the listing agent can disqualify a buyer before their offer is even made.
#3 Don’t make any large purchases
When you begin making offers on a home, make sure you avoid any large purchases, such as buying a new car, a new furniture set or a home entertainment center. Banks will look at your financial history and want to see any recent activity. The mortgage pre-approval you were given is based on how much money you had in your account and how much money you owed at the time you applied. If you make a large purchase and there is less money in your account, the less money the bank will be willing to lend you for your mortgage. As tempting as it is to envision furnishing a new property or parking your new car in the garage of your new building, hold off till you close on the property and are sure you can afford it. Putting a new bedroom suite on a credit card between board approval and closing can raise your mortgage rate.
#4 Don’t take out or put in large amount of cash from your bank account
Do not put in or take out large amounts of cash. The bank financing you will flag large deposits coming in because they may be loans from a bank or another lender. You in turn would have to pay back those loans on top of your mortgage, which would damage your debt-to-income ratio. A parent or family member may have gifted you part of your down payment in which case they may need to sign a letter stating that the money was a gift and you won’t be paying them back. If you did in fact have to pay them back, it would be added to your monthly debt. If you do happen to get a large sum of money from selling something like a car or if someone pays you money back that is owned, you’ll likely need to prove it was from a legitimate source. Most lenders will look at up to 60 days worth of bank statements. It is best to get your documentation organized ahead of time and make sure you can account for any large withdrawals or deposits.
#5 Don’t apply for more credit
How much you will get to finance your house will come down to how much money you have saved and how much money you have coming in. Any extra debt will decrease the amount you are approved for so adding anymore credit can greatly affect how much your loan will be.
The bottom line is, any notable change in your financial position- at any point in the mortgage process- can complicate your bank’s lending status. Loans to family that would be no one’s business but your own in normal times should be avoided between pre-approval and closing. Common sense decisions directly related to buying a new home, such as opening a line of credit with favorable terms at the furniture store where you’re updating your living room, can raise your interest rate at the last minute. Even a career move to a new employer that comes with a big pay raise can create issues for your bank if done between loan confirmation and closing. If any of these moves can’t be avoided, we’ll want to coordinate with your banker ahead of time to get their underwriting department all the information they need in order to update our loan and avoid any delay.