Before you buy a house don't.....

I have seen it all. Some clients say that have great credit and it's really bad or people claim to have a higher income than what appears on their pay stub. The truth comes out eventually. Lenders are required to pull your credit and in most situations require proof of income. There are few things however that you should not do before you buy a home.

1. Don't move money- most mortgage loans require liquid assets in reserves. This can affect your rate and even your eligibility to receive a loan. The mortgage company also needs to know where you down payment funds are coming from. They often request two or three months of statements. If they see big deposits they will want a paper trail so they know there has been no new debt. Underwriters want to make sure they are calculating your DTI (see previous blog entry). If you move money from account to another you may be able to document it, but it makes things a lot more difficult for the underwriter. So do not move money around unless you want the added stress. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company 401K and retirement accounts.

2. Don't add any new debt until after the mortgage is closed. This can add a significant debt to your DTI ratio and make you ineligible for the loan or effect you interest rate in a negative way! I once worked on a loan for a gentleman who went out and bought a new truck. Due to the nature of the loan we were required to pull an updated credit report and the new debt made the customer ineligible for the loan.

What is DTI?

Unfortunately, like in any business, real estate professionals often use jargon. DTI is a term commonly used and it’s very important when figuring your legibility for a loan. DTI is short for debt to income. What mortgage companies due is add up all the debt on your credit report and divide it by your gross (before taxes) income. In most situations you want your DTI to come in be below 45%. There are some non-traditional lenders that will allow for a higher DTI and if your credit score comes in high lenders often make exceptions. In order to get the best rate possible keep your debt low.

When banks compete you don't always win!

I worked for a very large bank for the last three years. My job was to assist in putting together a website and to work the new leads that came in via e-mail or through the banks chat function. I originated loans in every state with the exception of New York. While I was there I would often pull credit on new clients and they would often be amazed at how low their credit score was. At first I thought they were just thinking optimistically, but after I noticed a serious trend I began to ask questions. There is a large website that claims you win when you use their website, but in all reality you could really loose! Let me explain to you why. When your credit is pulled multiple times your credit score (FICO) changes and not for the better. This is how the company equips banks to compete. When you enter your information on their site the company sells your information to multiple people. Yes they sell it. They sell to banks and brokers. Once the multiple banks and brokers buy your information, they all pull their own credit report. When banks compete your credit does not win. That is why it's important to use someone you trust and not just an electronic lead generator.