When you are planning on making a major life purchase such as a home, there are a few things you will want to avoid doing so as not to cause any issues with your finances. They may sound like common sense or surprising to you but each of these can affect the way your mortgage underwriter views your loan application.
An underwriter will take a look at how much income you have coming in and what you are spending monthly on expenses. The more expenses you have the less home loan amount you may qualify for. Resist the urge to go out and buy new appliances so they are ready to be delivered on your closing date. Avoid the temptation to spend a little of that extra down payment money on a new car or take a vacation to celebrate. Wait until you have closed and are in the house to make any such purchases.
Your mortgage underwriter is also takes into consideration the source of your funds (for your down payment, closing costs and your ongoing monthly mortgage payments). As they must document all sources of your income, they require a paper trail of all withdrawals and deposits into your account of all your liquid assets. When you make withdrawals and deposits from one account to another, it makes the underwriters job that more difficult to document and can delay your closing or in a worse case scenario, cause the lender to pass on offering you a mortgage loan.
Mortgage underwriters will typically ask for the last 2 to 3 months statements of any liquid assets including checking and savings accounts, stock and mutual fund statements, money market funds and CD's, and company 401K and retirement accounts. The less you are able to move the money around, the quicker your underwriter can do their job with the goal of getting your mortgage loan approved.
If a large part of your income comes from commissions or bonuses, you should avoid changing employers once you have decided to start your search for a home. Mortgage underwriters will typically average your bonuses and commissions over a two year period with an employer. By changing employers you create some uncertainty about your future earnings. If you are a part time employee regularly working less than 40 hours per week, you should also avoid changing employers unless you are moving to a higher salaried position. A mortgage underwriter wants to be able to average your hours to determine income. If you are switching from one part time job to another part time job, the underwriter will not be able to estimate the number of hours you might receive from the new job. The same thing goes to overtime pay. If you derive a significant amount of overtime pay, it will be averaged over a two year period. It may cause issues if you change employers since the average amount of overtime hours cannot be determined.
If you are a salaried or an hourly employee and do not derive the majority of your income from overtime, bonuses or commissions, switching employers should not have as much as a negative effect for you to qualify for a mortgage. Especially if the result of changing jobs is an increase in pay.
If you own your own business, your underwriter is going to want to see at least a two year track record of your business income so don't quit your salaried or hourly job to start your own business until you have bought the home and are living in it. Also, don't make any business structure changes to your business such as switching it from a sole proprietorship to a corporation or partnership. Best to wait until you are in your new home to make these changes.
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