Lew Sichelman

The loan approval process can be a haunting experience, full of gremlins and “gotchas” that can jump out to derail your financing without warning. 

Many mistakes seem obvious; others, not so much. But they’re real, said Robert Spinosa, senior vice president of mortgage lending at Guaranteed Rate in San Anselmo, California.  

“They happen,” he said. “Over and over and over again.” 

San Diego Realtor Thomas Nelson, who recently posted on this topic on the ActiveRain real estate discussion site, has seen “seemingly innocent” goblins sink a transaction, delay it or at least “create a major panic” for both buyer and seller. 

Spinosa said lenders have seen them all, and he swears they don’t sit in judgment. So, if you think something could spook your lender, don’t hide it: Let them know as soon as possible so they can seek a solution. 

Here is a spooky list, from real estate veterans Spinosa and Nelson, of the most common things that go “thump” in the loan process. 

Dodge a Jump Scare at Closing 

First, many homebuyers think they are in the clear once the win their lender’s approval. But Spinosa said, “You are not closed until you are signed, funded and the deed is recorded with the county.” 

After they receive their loan approval letter, some folks run out and buy furniture for their new digs, taking on new debt in the process. Other buyers might purchase a new automobile on credit. Nothing wrong with either one, but wait until the sale is closed.  

“Keep your eye on the prize; close first,” said Nelson. 

Why? Because lenders reverify your application a day or two before closing to make sure nothing in your credit profile has changed. If you’ve opened new accounts, it may lower your credit score enough that the lender decides to charge you a higher rate – or that you are too risky a prospect. 

For the same reason, don’t change jobs until the dust settles on your loan. If you remain in the same field, you may be OK, but a lender won’t like any drastic changes. Even if you’ve just given notice that you’re changing jobs, “we may have a major problem,” Spinosa said. 

Also, when you applied for funding, you provided your tax returns for the previous two years. But some people file amended returns. If you did, and you forgot to mention it (or didn’t furnish your Form 1040-X), the lender might have to start all over. “You’re not in trouble with us or the IRS,” Spinosa explains. “But we do have to underwrite to the amended return.” 

What Frightens Off Lenders 

This one is for homeowners who are remodeling while also attempting to refinance.  

“Tell your lender if the home is in any way undergoing work, or will be when the appraiser arrives,” said Spinosa.  

Lenders won’t fund a loan on a house until all work is complete, and confirmed as such by an appraiser. 

Also, it’s generally not a good idea to cosign on a loan or credit application with anyone, even your offspring. If you do, that loan or card will be factored into your all-important debt-to-income ratio. Usually, the debt will show up on your credit report, unless it is too new to have been reported. Either way, tell the lender. Don’t hide it. Otherwise, you could be committing fraud. 

Failing to disclose an ownership interest in real property is a mistake, too. It will show up in your local property records, and underwriters will find it. Even if you own the place free and clear, ownership of other properties matters because you still have to pay property taxes and insurance, and those items are part of the lender’s debt calculation. 

Spooky Bank Transfers 

Here’s one that trips up many a loan applicant: Don’t move unsourced sums of money into your bank account. 

Lenders like to know where the money for your down payment and closing costs has come from. If it comes from a loan, even an informal loan from a relative, it counts as debt. That’s why lenders look at your two most recent bank statements. They want to make sure the money is there and that it meets their guidelines. 

“It’s essential we identify, reveal and document how you plan to close the transaction,” Spinosa explained. There has to be a paper trail. If big money suddenly appears in your account, the lender will want to know where it came from. 

Lenders look hard at your credit file, too, and so should you. But if you find an error, don’t dispute it – at least not until your loan is funded. Otherwise, you could impact your credit score in a negative way. If the mistake is an old one, for example, challenging it will turn it into a new issue and move it to the top of the list. 

Whether you are moving or simply refinancing, keep making your payments on the old loan until your new one is signed, sealed and delivered. The specter of having two mortgages hanging over your head is a daunting proposition for most everyone, but otherwise, you could show up as delinquent, which would likely derail your new financing. 

Lew Sichelman has been covering real estate for more than 50 years. He is a regular contributor to numerous shelter magazines and housing and housing-finance industry publications. Readers can contact him at lsichelman@aol.com. 

The Loan Process Can Be Haunted

by Lew Sichelman time to read: 4 min