Purchase Information for Existing Homeowners (and First Time Home Buyers)
There is so much information on the internet for first time home buyers, we felt it was important to devote a portion of our site to home buyers who have already owned one or more homes. The mortgage industry has gone through so many regulatory changes since 2008, there is a good chance that the process will be somewhat different than you remember. Fortunately you have found the Wendy Thompson Lending Team because making the loan process as smooth as possible is what we excel at.
If there is one thing about the loan process that has changed the most from the loans that were being made prior to 2008, it is the amount of documentation lenders now require. While there is no easy way to avoid this, what we’ve learned from our past buyers is that being asked for additional documentation three, four, and five times throughout the loan process is not at all pleasant and is also not terribly efficient.
The Wendy Thompson Lending Team has the experience to be able to look at your particular situation, and identify very accurately what the underwriter will likely require to underwrite your file. Being diligent and thorough at gathering the needed documentation at the beginning of the loan process almost always results in a very clean underwriting approval. It also ensures that we move through the loan process to closing your loan as quickly as possible.
There are many situations that we’ve encountered over the years that could have been avoided by doing a better job educating our borrowers before the loan process began. Clients frequently express concern about understanding the process of applying for a mortgage loan so they can better prepare themselves for the process. These questions are designed to assist you in preparing for your loan process so you can minimize the stress and requests for additional documentation that occur during the loan process.
Asset Related Questions
Can I use cash deposits?
Large cash deposits can rarely be used for any loan application purpose. This includes cash received from friends, family or the sale of items you had, or cash you have kept at home and plan to deposit back into your account.
You can however take the cash you have on hand and pay bills by money orders, and pay cash for items you would normally deplete your checking account with. For example, if you had $300 in cash from a birthday gift, you could buy your weekly groceries and pay cash, get your haircut and pay cash, and get a money order to pay your car insurance instead of using the money in your checking account. This would allow your checking account to accumulate $300 in acceptable funds from your payroll because you used the cash for something other than your down payment.
Occasionally, they will accept small deposits for cash; however, it is better not to use this as a source of funds for closing.
Can I take a cash advance on my credit card?
No. Cash advances may not be used as an acceptable source of down payment.
You can use the cash advances to pay other budget items but not your current rent or mortgage. You cannot deposit the cash advance into the account that is holding your funds for down payment, regardless of what is was used for.
Can I deposit checks from sources other than my payroll check into my account?
No. Checks coming from friends, family or other sources that are not your own earned money or already saved funds cannot be used.
For example, if your best friend writes you a check to reimburse you for dinner the other night, you cannot count this money in your account that holds your down payment.
Checks you receive for insurance reimbursements, medical payment reimbursements, a lottery win, a refund from a store or creditor are acceptable sources for deposits because they represent items owed to you for something you either already paid or earned. A copy of the check and sometimes the payment voucher is necessary to document these types of funds. Always make a copy of any check(s) you deposit that are not payroll checks.
If you deposit a check from your savings account, or money market or retirement account to your checking account, this is okay. We would then have to look at all the deposits for the last 60 -90 days into your savings, money market or retirement to determine the source of the funds.
I would suggest you have a main account that receives your payroll deposits. Then I would transfer household money from that account to another checking account at another bank. The household account would not be used for down payment and you could deposit any type of funds into this account to pay your household bills, buy items for purchase, and any other items you need. If friends or family give you holiday or birthday gifts, they could be deposited into this account.
Your main account would then be free of unacceptable deposits and you could accumulate your down payment in an account with limited transactions that would need to be reviewed. The reason I suggest a different bank is that many banks consolidate all your accounts into one statement and this would allow the underwriter to look at the household account and again, see all the other types of deposits.
See “What other things does the lender look for on account statements?” to see what additional review you would avoid using the two account system.
What about transfers into my account from another account?
If the transfers are from another account that you own, we can use it by documenting 60 days of history including deposits on the transfer account. A joint account held with someone else can be acceptable as well, with a letter from the joint holder that use of the funds is acceptable to them.
If the transfers are from an account that is not in your name, these transfers are usually not acceptable unless it is a gift from a relative or family member. Ask us about the additional documentation that is needed for gifts.
What do I do if I have already received money in my account?
We will need to see a copy of the check you deposited, and will need a letter of explanation about the source of the money. Occasionally, that letter would have to be written by the person/entity that provided the check.
You can usually get a copy of this check off your online banking system. If you don’t bank online, your bank can always provide a copy of a deposited item or the person/entity that wrote the check can provide a copy of the cancelled check as well.
What other things does the lender look for on account statements?
Lenders are frequently reviewing checking account statements for a pattern of overdrafts that would indicate that you are not managing your money well. Frequent overdrafts and/or NSF charges can be a red flag to the lender and could affect your loan approval.
Additionally, if you have an ongoing balance and are using your overdraft line too frequently, it can Indicate you don’t have sufficient cash flow to meet your obligations based on the income you receive.
When do I need to have my down payment?
Ideally, when you write your offer, your funds should be ready. Funds could be in the form of a gift, the sale of another property, or money you have already saved. We will document these with a gift letter, copy of cleared earnest money check, and bank statements to show you have funds ready for closing.
Occasionally, you may still be saving for closing and will be counting a future paycheck or disbursement you are expecting. Definitely have your funds available at least 7 days before closing.
Lenders will also frequently check funds again prior to closing. Please don’t spend your down payment funds on other items and expect to “replenish” them with payroll prior to closing. This could cause us to have to re-verify funds too close to closing and could slow down the process affecting our ability to meet your contract closing dates.
What is required for gift documentation?
Your loan originator will prepare and assist you in getting the documentation for a gift that is acceptable for the lender. Do not prepare your own gift letters as they may not be approved by the lender.
Generally, for gift documentation, the donor will sign a gift letter indicating the funds do not need to be repaid and have been gifted for your purchase. They will provide the funds to you in the form of a certified check that you can bring to closing or if the lender prefers, will deposit into your account. Lastly, a printout or statement from the donor’s account showing the funds withdraw are required to show the funds were provided from their account.
My agent is writing my offer this afternoon and I forgot my checkbook. Can my girlfriend (or mom or brother or friend) write the earnest money check for me and I can pay them back?
No. This is not recommended because it likely is not an acceptable source of your down payment. Ask your agent to let you bring your own check later for the offer to be submitted.
I don’t have enough money in my account for my earnest money. Can I write a check from my credit card account?
No. This is never an acceptable source for the earnest money.
Will my earnest money count toward my down payment?
Yes. You will receive credit for the earnest money to be applied toward your down payment.
Do I always get my earnest money back if I don’t purchase the home?
Usually but not always. You would get the money back if you cancel the contract by the dues dates for various options you have built into the contract. Generally, these are for the condition of the property, acceptable title, appraised value, and loan approval.
If all these conditions dates are passed, and you change your mind about purchasing the property, or you lose your job, or don’t sell your previous home, or don’t get final loan approval, your earnest money is rarely refundable.
What other expenses will I have to incur in addition to what is on the closing cost estimates provided by my loan originator?
You should be prepared to pay for property inspection which could include additional tests like Radon testing, sewer line scopes, and structural inspections.
These items can be paid for by credit card or funds on hand.
Credit Related Questions
What could I do on my credit that would jeopardize my loan approval:
- Pay rent or mortgage 30 days late
- Pay other bills late
- Open new credit accounts
- Buy a new car
- Apply for new credit even if you don’t open an account
- Co-sign for someone on a credit obligation including student loans
- Have a collection account show up for an unpaid account
- File bankruptcy
- Dispute an account
- Pay off an account or reduce the balance by a large amount
Employment/Income Related Questions
What if I want to change jobs just before or during loan application?
Changing jobs can have several effects on your loan approval and most of them are not good. Always ask your loan originator before changing employment.
For example, if you are employed and decided to start your own company, you would need to wait for 2 tax returns to be filed before we could use your new income for your new company. Even if it’s the same line of work and you expect to make a lot of money. The money cannot be determined until the lender sees 2 years of filed tax returns.
If you are changing jobs and you are paid hourly or salary, and you have had stable job history with no gaps, and you are improving your income, you would probably be OK if you do this prior to loan application. Most lenders want at least 30 days on a new job in the same line of work and you must not be in a probationary period.
Another example is taking a job that pays you as a 1099 contractor when you have been paid W-2 in the past. This would require the same 2 year history window as the self-employed borrower discussed above.
Always check with your loan originator if you are contemplating a job change.
My job is good through the closing date and 1 week after closing, I have a new job. Is that OK?
No. Your current employer will be contacted very close to the closing date and it is likely it will be revealed that you are leaving the company in a few days. This will cause your loan to be denied or postponed until long term acceptable employment can be documented.
I haven’t filed my taxes for this year (or previous years). Can the lender use the last two years that I have filed?
No. Lenders require that we use the last required tax returns for income determinations even if you are not self-employed. If you have not filed your taxes on April 15th of any given year, you will be required to provide your tax extension form. By October 15th, the lenders will require that we use that filed tax return for your current income determination.
I just filed today and the IRS can give me a printout that I filed. Will that be sufficient to close the loan.
No. The lenders will require that the IRS provide an electronic transcript via a 4506 request received from the lender. If you have just filed, it can take from 2 weeks to 3 months, to get the IRS verification. This timeframe depends on the time of year you filed, the method you filed, and the complexity of your return. Lenders will not make exceptions on this policy.
Closing Related Questions
When I go to closing, how do I provide my funds?
Most Title companies require a wire if the funds are over a certain amount.
When you obtain certified funds, these can be called a cashier’s check or a certified check. The bank will withdraw these funds immediately from your account and you cannot issue a stop payment on these unless you personally return the check to the bank.
We will email you a copy of your Final Closing Disclosure (CD) prior to closing and provide you with wiring instructions for your attorney or title company. Please be aware that many banks require that you come in personally to order a wire. If your bank is out of state, there may be additional steps and time necessary to issue a wire.
I recommend you check on this as soon as possible so you know what your timelines are for getting your funds to closing on time.
Who attends the closing and how much time do I need?
Closings generally take about 1 hour to complete.
The closing is attended by:
- All buyers
- A spouse/co-owner on title is required to sign documents at closing
- Buyer’s agent
- Closing Attorney or Title Company Representative
- Loan originator (usually on purchases/not always on a refinance)
I can’t attend the closing and I want to use a Power of Attorney (POA)?
A power-of-attorney is at the lender’s discretion. Many lenders will not allow a POA when there is only one borrower. You need to contact your loan originator immediately to determine if a POA will be acceptable to the lender and they will help get a POA prepared that can be approved by all parties. Also, if you are not going to be in town and are planning on signing the package out of town (mail away) please let us know as soon as possible.
What will the lender check the day of closing?
The lender will do a verification of your employment within 7 days of closing so please tell your loan originator immediately if you have a change of status with your job.
Additionally, we will also do a supplemental credit check (soft pull) to verify that you have not obtained any new credit, credit card minimum balances have not increased, and there are no new collections or past due accounts just prior to closing. Please make sure that you do not open any new accounts and that you continue to pay everything on time.
These steps are all attempts to keep mortgage fraud to a minimum and to make sure the loan is acceptable to the purchasing entity like Fannie Mae, Freddie Mac and FHA or VA.