Buyer's Guide
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
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 Purchases 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.
All articles © 2000
RealEstate ABC. No articles may be reprinted or
displayed without permission.
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