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Staying Approved so You Can Go to Settlement
Your actions after receiving conditional lender approval for a mortgage loan can disqualify you for the loan. A mortgage loan is conditionally approved, with the lender reserving the right to re-verify credit, income, assets and employment at anytime. The lender may cancel the loan if there are any adverse changes to your qualification status.
Your debt-to-income ratio is the amount you spend on debt divided by your gross monthly income. Debt items include mortgage payments (including principal, interest, insurance, tax & hoa/condo fee), car payments, credit card payments, student loans, child support payments, etc.
The lender considers debt-to-income ratio when approving you for a mortgage loan. Only a certain percentage of your income can be used for your mortgage payment, which includes taxes and insurance; and a somewhat higher percent for the mortgage payment plus the rest of your debt. Anything you do to negatively affect your debt-to-income ratio may change an “approval” to a “disqualification.”
A Call Before Closing?
Your mortgage lender will do a telephone verification of employment just prior to closing. They must be able to independently verify the number as your employer’s.
Avoid Red Flags
A red flag is any inquiry made regarding your credit worthiness. If you decide to purchase a big ticket item – like a car, boat or furniture – prior to closing, you’re at risk of having a red flag show up on your credit report.
Keep Your Money Where It Is
The balances of your liquid assets are considered when approving you for a mortgage loan. These liquid assets may include checking accounts, savings accounts, certificates of deposit, money market accounts, retirement accounts, stock and mutual funds.
Avoid changes to the balances of these accounts. Do not close accounts. Do not change banks. A large withdrawal or deposit to any of these accounts will trigger a red flag for your mortgage lender. If a red flag is triggered, you may be asked to produce a paper trail tracking large withdrawals and/or deposits.
For most employees a change of jobs to one of equal or higher pay will not trigger a red flag. However, commissioned sales people should not change jobs prior to closing on their mortgage loan.
If your income is strictly salary than you should not have a problem changing to another job of equal or greater income. If, however, your income includes salary and bonuses, commissions and/or overtime, and you need any of the three beyond salary to qualify you should not change jobs prior to closing.
If your income is based solely on a 40-hour work week without overtime, than changing to a job with equal or greater hourly pay should not be a problem. However, if your income qualification is dependent upon overtime pay, do not change jobs prior to closing.
If your income is from commission or a substantial portion of your income (25% or more) is from commission, then you should not change jobs prior to closing. Typically, mortgage lenders average your commissions over the last two year period to determine income. Changing employers eliminates the two-year commission history and places uncertainty on your income status.
Talk to Your Mortgage Consultant
Do not make any changes to your financial and employment status without first talking to us, your mortgage advice consultants.