Buying a Home in 2017? These 5 Things Could Jeopardize Your Mortgage

Here are five homebuying deal breakers.

Shockingly, enough people still do things that can cause themselves heartache when applying for mortgages. Here’s what you need to know if you’re thinking about buying a home in 2017.

Your ability to buy a home rests on the numbers and documentation your mortgage lender has. If there is a change to any of these, your chances of buying a home can be jeopardized. This means that when there is a change to your credit, debit, income assets, or job during the escrow process, you might not be able to buy that house and you’ll risk losing your money. Here are five things to watch out for.

1. Applying for Credit

After you get a contract to buy your house, it’s best not to apply for any credit. This means not applying for car loans, credit cards, utility bills, cell phone bills or any other form of credit whatsoever. Doing so could change your credit score and impact your rate lock and/or fees associated with closing on the house. (If you want to see where your credit stands before applying for a mortgage, you can view two of your credit scores, updated every 14 days, for free on Credit.com.)

2. Changing Credit

You don’t want to close out or dispute any credit cards. If you have any accounts in dispute, the mortgage lender cannot run automated underwriting and they must pause your loan file until your accounts are taken out of dispute. If you close your credit card, that can hurt your credit score, which in turn can increase your fees or put your ability to buy a home at risk.

3. Moving Money Around

Moving money around can cause more headaches than necessary. If you are receiving gift funds, the donor can wire the funds directly to escrow, bypassing your bank account entirely. If any of these funds happen to hit your primary checking account, that could spell more trouble, as it could appear as though you are spending your cash to close.

4. Switching Jobs

Changing jobs and getting into contract with the proper documentation is one thing. Signing a purchase contract and changing jobs is something else entirely, as most mortgage banks typically want you to have your job for at least 30 days. Some lenders will also want a pay stub, an offer letter and verification of employment prior to closing on the home. Word to the wise: Close on the house with your current job, if possible.

5. Shopping for Your Move Before You Actually Close

Hiring a moving company when you have not signed your final loan documents is just plain unnecessary and it sets you up for failure. If you have a moving company come on a certain day and for whatever reason your house doesn’t close, things can become problematic. Hire a moving company after you’ve signed the final loan documents. Same goes for purchasing furniture, especially if those funds come in the form of credit or cash in the bank — close on the house first, then go shopping. Short-term gratification is not worth the risk.

By adhering to these steps after you sign your purchase contract, you will be well on your way to successfully closing escrow with little or no hiccups.

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The post Buying a Home in 2017? These 5 Things Could Jeopardize Your Mortgage appeared first on Credit.com.

Remember: Keep Your Tax Returns If You’re Looking to Buy a Home

If you were planning to buy a home or refinance one you already own, you can expect to encounter a lot of paperwork. But here’s one thing you probably didn’t know: Tax returns aren’t always required.

If you are a W-2 wage earner, there is a smaller chance you’ll need to provide tax returns than if you’re self-employed. If you’re self-employed, the only way a lender can determine your income is by examining your tax returns. As a self-employed worker, these documents show how much you took home versus your net income. There are some situations where you can get away with using a year’s worth of tax returns, such as when you transition from being full-time employee at a company to being self-employed.

Automated Underwriting Findings

Mortgage lenders will ask for two years of tax returns, plus two years of W-2s and pay stubs from the last 30 days. Every mortgage in America sold on the secondary market is run through automated underwriting, software systems that crunch data and let lenders know your risk in terms of repaying the loan.

If you are a W-2 wage earner and the automated underwriting findings do not require tax returns, you may not need to provide returns at all in order to close on a home.

To be clear, we are discussing the average W-2 wage earner. Any of the following could trigger needing two years of tax returns despite your employee status:

  • Rental income
  • Social Security income
  • Pension income
  • Schedule C income beyond your normal W-2 job
  • Partnership in a business or another entity

Other Things to Keep in Mind

When you apply for a loan, it’s generally a good idea to provide two years of tax returns, two years of W-2s and the 30-day pay stubs all lenders require. However, there is a saying in mortgage lending that applicants should only provide “what is needed.” Providing only what’s asked for can go a long way, as there are fewer documents to scrutinize. That said, automated underwriting dictates what documentation you must provide to obtain financing.

Some banks also have additional requirements, so even if your loan does not require tax returns, their individual banking policies might. Such requirements are due to the bank’s relationship with Fannie Mae and Freddie Mac, or its particular appetite for risk. A good rule of thumb is to provide the bare bones requirements so there are no questions as to whether you qualify.

The key is to work with a mortgage lender who has a common sense approach to financing rather than one who promises ultra-low rates but is so risk-adverse that you are continuously asked to furnish more paperwork and your loan never ends up closing escrow.

Remember, a good credit score can help you secure an affordable mortgage. As such, it’s a good idea to see where you stand before you start applying. You can check your credit scores for free each month on Credit.com.

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The post Remember: Keep Your Tax Returns If You’re Looking to Buy a Home appeared first on Credit.com.