Your Ultimate Lending Process Guide
Whether buying a new home or refinancing your existing home, the loan process is vitally important. After all, very few people have enough cash lying around to buy a house in full — this is where a mortgage loan comes into play. If you’re getting ready to finance a property, it’s important to know the do’s and don’ts leading up to, and during, the mortgage loan process.
Many first-time homebuyers are confused by the countless amounts of paperwork, documentation, and required steps of the loan process. However, here at The Redbud Group, we want to make sure that you’re as prepared as possible for the journey. Continue reading to learn the 12 do’s and don’ts of the lending process.
What is the Lending Process?
A lender is a financial institution that offers and underwrites home loans. The lending process begins when you decide to buy a new home or refinance your existing home. During these processes, a lender will give you a set amount of money that you agree to pay back with interest over a period of several years. There are quite a few steps to the lending process that include:
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Getting pre-approved
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Budgeting how much you can afford
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Finding a home and making an offer
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Choosing a mortgage lender
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Completing a full mortgage loan application
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Having the home appraised
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Waiting for mortgage processing
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Signing closing documents
12 Do’s and Don’ts of the Lending Process
Now that you’re familiar with what the lending process is, let’s discuss six do’s and don’ts to remember, according to our preferred lending partner, in order to speed up your home-buying process.
Do’s:
1. Make Payments on All Existing Credit Accounts
This probably goes without saying, but it’s important that you continue to make payments on all of your existing lines of credit during the lending process. Making more than the minimum payment each month will help increase your credit score and your chances of being approved for a loan.
2. Use Existing Credit for Day-to-Day Purchases
If you regularly use your credit card for day-to-day purchases, it’s important that you continue doing that. If it appears that you are diverting from your usual spending patterns, it will raise a red flag and could cause your credit score to go down. In addition to impacting your credit score, lenders don’t like when borrowers make radical financial moves, so continue using your line of credit as you normally would.
3. Keep All Important Documents in a Safe Place
Your lender will look at your income, bank statements, and other financial documents before approving and closing your loan. Keeping these items safely stowed away will ensure that when you need them, you will know exactly where they are. Typically, your lender will let you know exactly what documents are required, so be prepared to quickly hand them over.
4. Sign all Needed Documents
Throughout the lending process, there will be plenty of documents and papers that will need to have your signature in order to move forward. It’s important to stay on top of your signing responsibilities in order to ensure the approval process moves quickly and smoothly.
5. Make Yourself Available for Home Inspections
As your closing date approaches, it’s crucial that you make yourself available for a home inspection. During the inspection, a qualified home inspector will take a detailed look at your house and make note of any hidden issues. In addition to the home inspection, you should also make time for your closing appointment with your loan officer.
6. Notify Your Loan Officer of Any Change in Funds or Employment
If anything happens to change with your employment or financial situation, it’s important to let your loan officer know as soon as possible — as it’s crucial to demonstrate income stability. If there is a problem, it’s best that your loan officer is informed sooner rather than later to give them ample time to find a solution. Being completely transparent with your loan officer will prevent unnecessary delays throughout the lending process.
Don’ts:
1. Apply For New Lines of Credit
If you receive invitations to apply to new lines of credit, ignore them. Opening any new lines of credit during the lending process can negatively impact your debt-to-income ratio and may harm your ability to qualify for a loan.
2. Make Large Purchases
Buying a car, appliances, or furniture is a no-go when it comes to the lending process. Making large purchases can also negatively affect your debt-to-income ratio, and can hinder the appearance of your ability to make monthly payments.
3. Co-sign For Any Type of Debt
If you’re thinking about buying a home, it’s not wise to co-sign for any type of debt. Lenders will look at what’s on your credit report, and if they see payments that raise a red flag, it could compromise your loan approval.
4. Ignore Your Credit Report
When lenders run credit checks, they are trying to determine what kind of borrower you will be. Ignoring your credit report during the lending process can cause you to be unaware of misinformation or errors on your report — making you seem like an unreliable borrower. By viewing your credit report, you’ll be able to see your late payments, maxed-out cards, and accounts in collection.
5. Make Employment or Compensation Changes Before Talking to Your Loan Officer
If an employment change is unavoidable, it’s crucial that you talk to your loan officer before making any final decisions. An employment change that causes your income to decrease can be detrimental to your loan approval process. Applying for a loan is all about showing income stability, and the process will move more smoothly if you keep your job and income consistent.
6. Deposit Any Cash in Your Bank Before Talking to Your Loan Officer
Depositing funds into your bank account that are not easily documented can cause roadblocks during the lending process, as an unexplained deposit can threaten your loan qualification.
If you are receiving funds as a gift, it’s important that you discuss the deposit with your loan officer, as you will likely be required to provide certain documentation proving the funds were gifted.
Contact Us to Learn More About Our Preferred Lending Partners
Ultimately, any questions that you have regarding the lending process should be discussed with your loan officer. They will be able to give you clear, professional advice and put you and your finances on the right track to approval.
If you or someone you know is interested in learning more about the lending process, don’t hesitate to contact us and get connected with our Preferred Lending Partner! Additionally, check out this free handy checklist that further explains the mortgage process. Use the button below, or visit our website to get in touch with our team.
