Don’t
Move Money Around
When a lender reviews your loan
package for approval, one of the
things they are concerned about is
the source of funds for your down
payment and closing costs. Most
likely, you will be asked to provide
statements for the last two or three
months on any of your liquid assets.
This includes checking accounts,
savings accounts, money market
funds, certificates of deposit,
stock statements, mutual funds, and
even your company 401K and
retirement accounts.
If you have been moving money
between accounts during that time,
there may be large deposits and
withdrawals in some of them.
The mortgage underwriter (the person
who actually approves your loan)
will probably require a complete
paper trail of all the withdrawals
and deposits. You may be required to
produce cancelled checks, deposit
receipts, and other seemingly
inconsequential data, which could
get quite tedious.
Perhaps you become exasperated at
your lender, but they are only doing
their job correctly. To ensure
quality control and eliminate
potential fraud, it is a requirement
on most loans to completely document
the source of all funds. Moving your
money around, even if you are
consolidating your funds to make it
"easier," could make it more
difficult for the lender to properly
document.
So leave your money where it is
until you talk to a loan officer.
Oh…don’t change banks, either.
The
Effect of Changing Jobs
For most people, changing employers
will not really affect your ability
to qualify for a mortgage loan,
especially if you are going to be
earning more money. For some
homebuyers, however, the effects of
changing jobs can be disastrous to
your loan application.
How Changing Jobs Affects Buying a
Home
For most people, changing employers
will not really affect your ability
to qualify for a mortgage loan. For
some homebuyers, however, the
effects of changing jobs can be
disastrous to your loan application.
Salaried Employees
If you are a salaried employee who
does not earn additional income from
commissions, bonuses, or over-time,
switching employers should not
create a problem. Just make sure to
remain in the same line of work.
Hopefully, you will be earning a
higher salary, which will help you
better qualify for a mortgage.
Hourly
Employees
If your income is based on hourly
wages and you work a straight forty
hours a week without over-time,
changing jobs should not create any
problems.
Commissioned Employees
If a substantial portion of your
income is derived from commissions,
you should not change jobs before
buying a home. This has to do with
how mortgage lenders calculate your
income. They average your
commissions over the last two years.
Changing employers creates an
uncertainty about your future
earnings from commissions. There is
no track record from which to
produce an average. Even if you are
selling the same type of product
with essentially the same commission
structure, the underwriter cannot be
certain that past earnings will
accurately reflect future earnings.
Changing jobs would negatively
impact your ability to buy a home.
Bonuses
If a substantial portion of your
income on the new job will come from
bonuses, you may want to consider
delaying an employment change.
Mortgage lenders will rarely
consider future bonuses as income
unless you have been on the same job
for two years and have a track
record of receiving those bonuses.
Then they will average your bonuses
over the last two years in
calculating your income.
Changing employers means that you do
not have the two-year track record
necessary to count bonuses as
income.
Part-Time Employees
If you earn an hourly income but
rarely work forty hours a week, you
should not change jobs. There would
be no way to tell how many hours you
will work each week on the new job,
so no way to accurately calculate
your income. If you remain on the
old job, the lender can just average
your earnings.
Over-Time
Since all employers award overtime
hours differently, your overtime
income cannot be determined if you
change jobs. If you stay on your
present job, your lender will give
you credit for overtime income. They
will determine your overtime
earnings over the last two years,
then calculate a monthly average.
Self-Employment
If you are considering a change to
self-employment before buying a new
home, don’t do it. Buy the home
first.
Lenders like to see a two-year track
record of self-employment income
when approving a loan. Plus,
self-employed individuals tend to
include a lot of expenses on the
Schedule C of their tax returns,
especially in the early years of
self-employment. While this
minimizes your tax obligation to the
IRS, it also minimizes your income
to qualify for a home loan.
If you are considering changing your
business from a sole proprietorship
to a partnership or corporation, you
should also delay that until you
purchase your new home.
No
Major Purchase of Any Kind
Review the article title "Don’t Buy
a Car," and apply it to any major
purchase that would create debt of
any kind. This includes furniture,
appliances, electronic equipment,
jewelry, vacations, expensive
weddings…
…and automobiles, of course.
Don't
Buy a Car
When an individual’s income starts
growing and they manage to set aside
some savings, they commonly
experience what may be considered an
innate instinct of modern civilized
mankind.
The desire to spend money.
Since North Americans have a special
love affair with the automobile,
this becomes a high priority item on
the shopping list. Later, other
things will be added and one of
those will probably be a house.
However, by the time home ownership
has become more than a distant and
hopeful dream, you may have already
bought the car.
It happens all the time, sometimes
just before you contact a lender to
get pre-qualified for a mortgage.
As part of the interview, you may
tell the loan officer your price
target. He will ask about your
income, your savings and your debts,
then give you his opinion. "If only
you didn’t have this car payment,"
he might begin, "you would certainly
qualify for a home loan to buy that
house."
Debt-to-Income Ratios and Car
Payments
When determining your ability to
qualify for a mortgage, a lender
looks at what is called your
"debt-to-income" ratio. A
debt-to-income ratio is the
percentage of your gross monthly
income (before taxes) that you spend
on debt. This will include your
monthly housing costs, including
principal, interest, taxes,
insurance, and homeowner’s
association fees, if any. It will
also include your monthly consumer
debt, including credit cards,
student loans, installment debt,
and….
…car payments.
How a
New Car Payment Reduces Your
Purchase Price
Suppose you earn $5000 a month and
you have a car payment of $400. At
current interest rates
(approximately 8% on a thirty-year
fixed rate loan), you would qualify
for approximately $55,000 less than
if you did not have the car payment.
Even if you feel you can afford the
car payment, mortgage companies
approve your mortgage based on their
guidelines, not yours. Do not get
discouraged, however. You should
still take the time to get
pre-qualified by a lender.
However, if you have not already
bought a car, remember one thing.
Whenever the thought of buying a car
enters your mind, think ahead. Think
about buying a home first. Buying a
home is a much more important
purchase when considering your
future financial well being.
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