Wait on that Harley
by Evan Vanderwey on 08/10/09 at 8:00 am
So you want to buy a Harley? And that new house you’re closing on in a month has the perfect garage for it. It sure seems like the stars are aligning for you, and maybe they are (if you believe in that sort of thing). But before you and the Mrs. go shopping for matching leather chaps, you might stop and consider something…
That new debt just might put the breaks on your mortgage application process. It might not kill the deal, but it might. Or it might just slow everything down and send you through another round of paperwork. Lenders, now more than ever, are looking for stability in their customers’ financial lives. So before you buy that hog (or take on some other big life change) consider these to-be-avoided, attention-getting events…
New Debt. Lenders like debt-averse folks (as long as they’re willing to go into mortgage debt, that is), and taking another financial burden at the same time you’re buying a new house doesn’t exactly shout conservative. Of course, big-purchase potential seems to abound at new-house time (appliances, furniture, renovations). That doesn’t matter. WAIT. If you can avoid the temptation, you’ll avoid increasing your debt-to-income ratio, the “back-end” ratio, as we call it.
New car lease. Oddly enough, new car leases are very popular with people moving into new homes. Maybe they just think it’s time for change all around. But leasing a car is no different than going out and buying one because it has the exact same effect on your back-end ratio. So wait on the lease. Your old car will fit into your new garage just fine.
The Job Change. Lengthy employment suggests stability, responsibility, and security—top-spot traits on any good-customer profile. Even a promotion bringing more income can be a liability if it suggests risk. Now, you don’t always have the luxury of postponing a promotion, but you can postpone quitting your job and enrolling in community college to “find yourself.” At least for a few weeks. Yourself will wait. It’s not going anywhere.
Packed paperwork. Keep close at hand any and all files and papers that have anything to do with your finances. Yes, it’s a strong temptation to box up all that stuff for the moving van, but if a new round of paperwork has to be initiated or a number substantiated, you don’t want to make matters worse by adding to the delay. There’s plenty of delay built into the process without your contribution.
Gifts. On an FHA loan, a gift as a source of funds is acceptable, but only from a blood relative, so make sure the relationship is documented. The idea here is that no funds have originated from any debt-increasing source, that the gift is truly a gift.
Tax returns. Yours have been filed over the past three years, right? Tax returns aren’t collected at application, but they are randomly checked thru the 4506 IRS tax form. Unless they’re needed for an MCC credit or a self-employed / commissioned borrower, returns are only checked for a “filed” status. But an un-filed return can halt the process real quick.
Bottom line? Go static. Put all major life changes (those you can somewhat control, anyway) on hold. Keep in mind that the mortgage application process is not a fixed snapshot of your financial life. Think of it more as surveillance footage watching you right up to closing. So go along quietly, responsibly, like you always have, sign your papers, and then go change careers or buy a motorcycle.
