9 Mistakes to avoid when buying a home.

by ChrisHill on October 15, 2013

I look forward to helping you finance your future home!

I want to help you make this process as easy as possible.  Below, I have listed several common mistakes for you to avoid while you are looking for a home.  Please contact me before you do any of these things:

  1. Applying for any new credit accounts
  2. Closing any existing credit accounts
  3. Increasing the limit on any existing accounts
  4. Consolidating any debts
  5. Making any large purchases. (e.g. Auto, Appliances, etc.)
  6. Making any non-payroll deposits of $500 or more.
  7. Changing jobs, or pay structures (even with your same employer).
  8. Paying off any liens, judgments, or collections.
  9. Anything else that may reduce your liquid assets.

I am not saying that you cannot do any of these things, but please call me before you do so we can discuss it.

 

1) Call me before you apply for any new credit accounts.

Applying for a new credit account can reduce your credit score whether you get the new account or not.  Your credit score may be even further reduced if you establish a new account.

Depending on how long it takes for you to find a home, we may need to pull your credit again.  Depending on your current score, even a drop of a few points can increase the cost of your loan.  In some cases, it may even disqualify you for the loan.

While this is not always the case, please call me before applying for any new credit so we can discuss the potential impacts.  You can then make the decision that is best for you.

 

2) Call me before you close any existing credit accounts.

Why?  The credit bureaus like to see older established accounts.  They also like to see that you still have some credit “room” to charge unexpected expenses.  Because of this, existing accounts may be making a positive contribution to your credit score even if (especially if) they have a very low balance.

Depending on how long it takes for you to find a home, we may need to pull your credit again.  Depending on your current score, even a drop of a few points can increase the cost of your loan.  In some cases, it may even disqualify you for the loan.

While these impacts are not always the case, I recommend you call me before you close any existing accounts so we can discuss the potential impacts.  You can then make the decision that is best for you.

 

3) Call me before you increase the limit on any existing credit accounts.

Why?  As mentioned in my last tip, the credit bureaus like to see older, established accounts.  In some cases, when you increase a credit limit, the credit bureaus consider this to be a new (or recently modified) account.  This may “re-start” the clock on how long they consider you to have had that account.  This can cause you to lose the points you were receiving for the “older” account, and reduce your credit score.

While a reduced credit score does not always cause an issue, I recommend you call me before you increase the limit on any existing accounts so we can discuss the potential impacts.  You can then make the decision that is best for you.

 

4) Call me before you consolidate any debts.

Why?  As mentioned in my last few tips, the credit bureaus like to see older, established accounts.  When you consolidate older accounts into a newer account, this can cause you to lose the points you were receiving for all of the “older” accounts, and reduce your credit score.  If you consolidate several accounts the impact can be very negative.

Further, if you work with a debt consolidation company who is negotiating on your behalf, this alone can be a drastic hit to your credit score.  Also, the fact that you have consolidated debts in this way can disqualify you for some loan programs even if your credit score is still high enough.

Because of the potential negative impacts of debt consolidation, I strongly recommend you call me before you consolidate debts so we can discuss it.  It may still be the right thing to do, but let’s make sure.

 

5) Call me before you make any large purchases. 

Why?  In almost all cases, a large purchase (such as a car, appliances, etc.) will have at least one of the impacts below:

  • If you finance the purchase, it will probably reduce your credit score AND increase your debt-to-income ratio.  (The debt-to-income ratio affects how much home loan you can qualify for.)
  • If you pay cash, it will probably reduce the money you have available for down payment, closing costs, and reserves.  (Some programs require reserves: money left over after you have paid your down payment and all other costs.)

In some cases, these impacts can increase the cost of your loan, reduce the amount you can qualify for, or disqualify you for the loan.  While this is not always the case, please call me before you make any large purchases so we can discuss any potential ramifications.

 

6) Call me before making non-payroll deposits of $500 of more

Current lending rules require a borrower to document the source of all large deposits into any accounts that we are documenting.  This includes accounts that are being used to show income, assets required for closing, or assets required for reserves.

Direct-deposits from employers, the government, pensions, or IRA’s usually have enough documentation right on the bank statement.  However, this is usually not the case for “non-payroll” deposits.  For example, selling your old car and depositing $3000 into your account can require you to come up with a lot of additional documentation.

There are often ways to avoid “non-payroll” deposits from causing an issue.  Please call me before you make any large, non-payroll deposits to make sure you follow the easiest path.

 

7) Call me before changing jobs or pay structures.

Often, changing jobs when you are looking for a home is not a big deal, but that is not always the case.  There are several job changes that can reduce the amount of income that we can use to qualify you for your home loan – sometimes eliminating your qualifying income all-together.  Even if you can count the income for the new job, it can sometimes cause a delay in the process.

Examples that often present issues include:

  • Becoming newly self-employed or changing your self-employment structure
  • Taking a job that reduces your salary or hourly wage (even if it has higher commission or bonus)
  • Moving from full-time to irregularly scheduled part-time (even if your hourly wage makes up the difference)

This is only a partial list so please call me if you are considering changing jobs or pay structures.  You may still decide to make the change, but at least you won’t be surprised if it impacts your ability to buy the home you want.

 

8) Call me before paying off any liens, judgments or collections.

Please disregard this tip, if you have no outstanding liens, judgments or collections.

If there are outstanding liens, judgments and/or collections they will usually need to be paid before closing.  However, the timing of when you pay these can be very important.  Since credit scoring systems more heavily weigh recent events, a recently paid collection can often have a more negative impact than an unpaid collection that is a few years old.  Therefore we may want to wait to pay-off these items until we are confident that we will not need to pull your credit again for this home loan.

If you have any outstanding liens, judgments or collections please give ma a call so we can develop a plan just for you.

 

9) Call me before doing anything that may reduce your liquid assets.

As mentioned in Tip #5, lenders require you to have enough liquid assets for your down payment, closing costs and required reserves.  Taking any action that reduces the amount of liquid assets you have can cause issues in some cases. Examples include: moving funds from a regular account to a tax deferred account such as an IRA, loaning or giving money to a friend, or even just spending your money on a vacation.

I am not saying that actions like these always cause problems – but sometimes they do.

Please call me before you do anything that may reduce your liquid assets significantly.  I will be happy to “run the numbers” and let you know if there is anything to be concerned about.

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How to find a great Loan Officer

Post image for How to find a great Loan Officer

by ChrisHill on January 26, 2012

The most important thing most people can do to make sure they get a great home loan is select a great Mortgage Loan Officer.   Loan Officers are like most anything else:  There are some really great ones.  There are some really bad ones.  Most are somewhere in the middle.

Here are some ways to find a great Loan Officer:

  • If you are buying a home, get a referral from your realtor.  Most realtors who have been in the business for a while have run into loan officers with a variety of skill levels.  They are in a good position to see who really does a great job when the chips are down!  Ask your realtor for their thoughts.
  • Check out their website.   A great loan officer will probably have a blog that shows that they understand what they are doing.  Don’t be fooled by a “canned” website, or a company website.  You can find a million slick websites out there with mortgage calculators on them.  Look for original material posted by the loan officer, but don’t expect them to give away all their secrets.    Look for clues that the specific loan officer you will be working with is an experienced expert.
  • When you think you have found your loan officer, call them and see if it fits.  Let them know you are looking for someone to help you with a home purchase or refinance.  Then sit back and see what they do with the conversation.  A great loan officer will start asking you insightful questions that will help ensure they understand all your needs and do a great job for you.
  • Ask how many mortgages they have personally originated.  Your mortgage is too important to work with someone who does not have depth of experience.  Ask them point blank how many mortgage loans they have personally originated.   Listen carefully to make sure they don’t tell you how many their company has done.  There are many important details that an inexperienced loan officer will not even know to ask you about, let alone discuss with their boss.  Look for someone who has personally originated at least 500 loans.
  • Don’t be afraid to commit.  The best loan officers will probably ask you for some sort of commitment after your first or second conversation.  Remember, since most of the best loan officers work primarily on commission they cannot afford to invest a significant amount of time with someone who is not committed to working with them.  If someone gives away a lot of time without asking for a commitment in return, their time may not be worth that much.  If you are not willing to commit, you may not be able to work with the best.

See prior blog post

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How to get a great home loan

January 25, 2012

Leadbetter House

The most important thing most people can do to make sure they get a great home loan is select a great Mortgage Loan Officer.   Loan Officers are like most anything else:  There are some really great ones.  There are some really bad ones.  Most are somewhere in the middle.

Here are some of the things that a great loan officer will do for you:

  • A great loan officer will help you get the best loan program for your situation.  There is usually a selection of programs that can be used for each situation.  Many loan officers are not familiar with some of these programs and cannot offer them to you because of their lack of experience.  Usually they are not trying to do something that is not in your best interest.  They just don’t know what they don’t know.
  • A great loan officer will help you structure your loan to your greatest advantage.  Any given loan program can often be structured several different ways depending on what is most important to you.  What is your current cash position?  How much money will you need for renovations or other goals in the next few months?  How long do you plan to own this home?  These are just a few of the questions that a great loan officer will ask to help ensure they suggest a loan structure that meets your needs well.
  • A great loan officer will properly set your expectations and help you make decisions that reduce risks of unforeseen expenses.   While nobody can anticipate every possible scenario, a great loan officer has usually done several hundred loans and has a greater knowledge base to draw from.  This can help you to avoid making commitments that you should not make, avoid spending money you should not spend, and help minimize any unexpected costs at the closing table.
  • A great loan officer will help you to close your loan on time.  There are many events that seem totally unpredictable to many people.  Some truly are unpredictable, but some can be predicted by someone with enough experience.  In some cases, home purchases needlessly fall apart because someone did not foresee a potential issue and plan for a contingency.   A great loan officer will help you understand how to minimize the impact of unexpected events and increase the likelihood that your home purchase will close on time.

So how do you select a great loan officer?  That will be the subject of my next post.

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VA Funding Fee Changes Delayed Indefinitely

November 21, 2011

As of November 19th, the VA Funding Fee reductions that were previously
anticipated have been indefinitely delayed by President Obama.

The VA funding fees were to be reduced on October 1, 2011.
Then the reductions were delayed until November 18th.
President Obama delayed them indefinitely on Saturday, November 19, 2011.

At this time, VA funding fees remain the same as they were before October 1st.

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FHA Amendatory Clause / Real Estate Certification

January 30, 2011

Here is a way to save some time with your FHA Buyers! Save this form on your computer desktop. Then remember to include it with your FHA purchase offers. Most lenders require this form before they will issue FHA loan documents. Unfortunately, many Real Estate Agents do not include this form when they write an FHA offer. Instead, we end up running around weeks later trying to get this form signed by all parties so we can get loan documents to escrow. You can save yourself some time and hassle by getting it done as part of the offer.

FHA Amendatory Clause / Real Estate Certification

I hope you find this helpful!

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