Getting a mortgage has become more difficult over the years. Here are some things you should and should not do to make the process easier:
- DO: Get your credit report. If it’s pristine, this is an opportunity to make sure everything is accurate. If it needs some improvement, now is the time to “clean it up.” Pay off those pesky smaller balances and address any negative reports.
Obviously you’ll need to keep your creditors in good standing to get a mortgage, so continue keeping everything current and pay off the balances you can.
DON’T: Close any open lines of credit right now, or pull your credit multiple times for any reason.
- DO: Hang on to cash. Buying a home can eat up a LOT of cash for both expected and unexpected expenses. Right now is NOT the time to splurge on much of anything, EVEN IF you enjoy a high income and lavish lifestyle. Until you’re in your new home, hang on to cash!
DON’T: Open ANY new credit lines or make and additional large purchases, like a car. Be especially careful not to open up department store credit cards to get that 20% off deal.
- DO: Be prepared to explain all open lines of credit, when they were opened (approximately), what the credit was used for, etc. Be especially prepared to explain any slow payments of late payments, i.e. “was slow paying due to [divorce, injury…] and became current within six weeks.” Even if you do not have slow or late payments, be prepared to explain your various credit lines in detail.
DON’T: Wait until this information is requested. It will eventually be required and the more prep time you have the more thorough you can be. Underwriters will appreciate a well-prepared report on your credit.
- DO: Prepare three-years of tax returns and six months of paystubs. If you are a commissioned sales person, or a business owner, you may have to work harder to prove your income and might want to include a P&L Statement. If you receive alimony or child support you’ll want cancelled checks with coinciding deposits, as-well-as your Judgement for Divorce and Permanent Parenting Plan (with amendments) to show the payments you receive.
DON’T: Try to fudge anything. Your income is what your income is. Your bills are what your bills are. Keep everything accurate and don’t be tempted to make your income look better than it is to get more house. That just won’t work in the long run.
- DO: Prepare three months of bank account statements, retirement plan / IRA statements, and any other asset documentation you have. Make notes on deposits and expenditures that are out of the norm since you’ll have to explain them. If you took a loan on your 401(k), be prepared to show in detail why and how the funds were used.
DON’T: Make any major changes in anything at during the underwriting process. Avoid opening new accounts, or making anomalous transactions other than what is required for closing.
BONUS CONTENT: That’s five big preparatory steps to be ready for the mortgage underwriting process. Some other pointers are: be ready to show source of funds, and funds availability (your bank generally helps with this), be prepared to wire money to the title company, get your insurance agent in the loop early since they will have to show you’re insured, make sure your life insurance is up to snuff for your new liability.
Federal regulations have made the mortgage process more difficult, but with some advance planning, and working with a good mortgage broker that keeps you ahead of the game it’s possible to avoid a lot of hassle and get into that new home with less stress.
These are the opinions of William Parrish and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Cambridge does not provide tax/legal advice.
Will Parrish, a Certified Divorce Financial Analyst™ CDFA™ is a founding partner of Slate, Disharoon, Parrish and Associates, LLC, and is located in Knoxville, Tennessee specializing in services for medical professionals, business owners, and corporate executives, and divorce financial planning. Feel free to contact Will with questions via email will@sdp-planning.com or directly by phone at (865) 357-7373. Visit their website, www.sdp-planning.com.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisers, Inc., a Registered Investment Advisor. Slate, Disharoon, Parrish & Associates, LLC and Cambridge are not affiliated.