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Three Things You Want to Avoid in the Mortgage Process

Three Things You Want to Avoid in the Mortgage Process

Ready to buy your dream home? Have you chosen your mortgage lender yet? You are much more likely to get mortgage-approved if your bank statements are clear of these three things:

1.  Bounced checks

If your checking account is littered with multiple overdrafts or non-sufficient funds charges, underwriters are likely to conclude that you’re not great at managing your finances.

Mortgage rule-making agency Freddie Mac says that additional scrutiny is required when bank statements include NSF fees.

FHA loans require lenders to manually re-approve borrowers with NSFs, even if the borrower has already been approved by a computerized system.

2. Large, undocumented deposits

Outsize or irregular bank deposits might indicate that your downpayment, required reserves or closing costs, are coming from an unacceptable source.

The funds might be borrowed. For instance, you could take a cash advance on your credit card, which might not show up on your credit report.

Borrowed funds will incur additional monthly payments. Borrowing a downpayment is allowed, you just have to disclose it.

A large deposit could also indicate an “illegal” gift. A home buyer can’t take help from a party who stands to gain from the transaction - the home seller or real estate agent.

Freddie Mac lists “recent large deposits without acceptable explanation” as red flags about which lenders should follow up with the applicant.

If you can’t prove that the source of that big deposit is acceptable under the program guidelines, the lender must disregard the funds and use whatever is left to qualify you for the loan. If the verified funds aren’t enough to qualify you for the loan, you’ll need to save another chunk of cash -- from an acceptable source.

If you did receive a large deposit recently, you may want to wait 60 days before applying for a mortgage. At that point, the funds become "seasoned," meaning they are now your funds, despite the source.

3. Regular payments, irregular activities

Watch out for a monthly payment that does not correspond to a credit account disclosed on your application. Typically, your credit report will pull in your credit cards, auto loans, student loans, and other debt accounts. But some creditors don't report to the major credit bureaus.

For instance, if you got a private personal or business loan from an individual instead of a bank, those debt details may not show up on your credit report. The monthly $300 automatic payment on your bank statement, however, is likely to alert the lender of a non-disclosed credit account.

For more tips on getting approved for your mortgage, contact us!