loan application Surprises come in two flavors; good ones and bad ones. A good surprise is an impromptu birthday party or you find a brand new car in your garage. Bad surprises are things such as an IRS audit or a pop quiz you weren’t expecting. When thinking about qualifying for a home loan, you want to avoid the bad surprises, and with a little preparation you can. How?
I work with some of the best loan officers in the Chicago area and each one of them can tell me how a loan that appeared just fine at the beginning ultimately turned for the worse. And it’s usually the result of what the borrower did after they applied for a home loan and before the loan finally closed.
When a borrower applies for a preapproval and completes a loan application, the lender will evaluate the buyer’s financial profile including income, credit and assets. After such a review, the lender issues a preapproval letter. But things can change after the borrower applies for a home loan, directly affecting the quality of the letter.
A common culprit affecting a preapproval is additional purchases made after a loan is approved. For example, a couple sets out to buy their first home and applies for a mortgage. Their income and current debt is reviewed and the buyers receive are told the maximum home loan they can qualify for. The keyword in that phrase is “current.”
If that same couple applies and gets an approval for a home loan soon decide they want to buy a new boat in the meantime. After all, their credit must be good because they received an approval for a home loan, right? The problem with that scenario is suddenly they have a new monthly payment; the one for their new boat.
How will the lender find out? As part of the final underwriting process, a lender will always pull an updated credit report right before loan papers are sent to the attorney for closing. If the lender sees that someone else reviewed their credit report in order to make a credit decision, everything stops. The lender wants to know about the company that just financed the brand new boat. And if those new monthly payments suddenly push up the couple’s debt ratios so high they can no longer qualify, well, that’s a bad surprise that should have been avoided.