7 Ways To Accidentally “Un-Approve” Your Mortgage

Despite all the talk of how difficult it is to be “mortgage approved,” the basics of mortgages haven’t changed. Mortgage approvals are still the 3-legged stool of income, equity, and credit.

Sometimes, though, it’s not getting approved that’s hard — it’s staying approved.

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When Things Go Wrong

In a typical home loan market, mortgage approvals take about 3 weeks from start-to-finish.

However, depending on market conditions, it can take longer. For example, if rates are low and there’s a refi boom going on, a refinance can take 6 weeks to close. Banks don’t have capacity to do work much faster.

If you’re buying a home and it’s a short sale or foreclosure, expect delays there, too. With REO, it can take up to 6 months.

During all that “extra time,” a lot can go wrong, which ultimately affects your loan. For instance, if you lose your job, get sick, or your home gets damaged for any reason, you can lose your mortgage approval, even if you were previously cleared-to-close.

Unfortunately, such events are beyond your control. But, you can control yourself during these times. Remember, good behavior matters in mortgage.

Bad Mortgage Behavior, Defined

Here are 7 things you should absolutely not do between your date of application and your date of funding:

1. Don’t forget to pay your bills!
2. Don’t quit your job to change industries or start a new company
3. Don’t switch from a salaried job to a commission-based job
4. Don’t transfer large amounts of money between bank accounts
5. Don’t buy a new car or trade up to a bigger lease
6. Don’t open any new credit cards
7. Don’t make random, undocumented deposits into your bank account

And that’s it.

For example, if your car lease is expiring, you have to renew the lease. Although, before you renew your lease, check with your loan officer to see if this decision would be more mortgage-friendly.

 

There are a bevy of “gotchas” in Mortgage land and you can’t expect to know them all. These 7 rules, however, are a good start.

Get Low, Long-Term, Locked Mortgage Rates

Mortgage refinances take time and the best thing while your loan is in process is to keep the status quo. You can’t control nature, but you can control you. Be smart with your finances and don’t let your mortgage get un-approved.

Time Your FHA Streamline Refinance Closing

The Streamline Refinance allows a limited amount of paperwork; the FHA Streamline Refinance can be among the simplest, fastest refinance programs out there. According to FHA guidelines, there is no appraisal, no income to verify; and no credit to review (be aware some lenders do ask for tax returns).

This is a simple and quick refinance; however, to close on a FHA Streamline Refinance, it requires vigilance. Mainly, the homeowners need to pay close attention to their expected mortgage closing date so they don’t waste any of their hard earned cash.

What’s at stake is up to 30 days of prepaid mortgage interest which may be double-paid without your knowledge. It’s because of the FHA guideline which allows mortgage lenders to collect a full month of mortgage interest, regardless of whether the loan’s been paid off prior to the month end; this is different from a conventional refinance for which a mortgage lender will only collect through the payoff date.

To put this FHA rule to an example, assume a homeowner in Orange, California is doing the FHA Streamline Refinance to refinance a $450,000 mortgage; and assume the new FHA loan will fund on the 10th of the month.

• 20 days of per diem interest paid to new lender, to cover the rest of the month
• 30 days of per diem interest paid to old lender, because the FHA prescribes it

The homeowner who funds an FHA Streamline Refinance on the 20th day of the month, therefore, is paying 50 days of mortgage interest for 30-day month — a waste of 20 days of interest.

The better plan is to fund the loan on the 30th of the month such that only 1 day of mortgage interest is paid to the new lender, reducing the total interest paid to 31 days and this will save a good amount of money.