Buying your first home is an exciting time. The steps to buying a home can also be frustrating and for most of us it requires some patience and understanding. There are many moving parts in qualifying for a home. You will probably get a lot of phone calls from your mortgage loan officer and your real estate agent asking for additional information. This will happen all the way down to the last day when you sign your loan documents and get your house keys for the first time.
One of the most important things you can do while you are waiting for your loan to be approved and for you to sign loan documents is to be very low key when it comes to spending money or getting additional credit accounts. Qualifying for a loan is a delicate process and any little change can mess the whole thing up. Even if you think you can do something, before you do, check with your loan officer if it involves money or credit.
The following is a story about a FHA loan that I closed for a couple who buying their first home a few years ago. These folks did something very minor, but it altered everything about their loan and caused a slight delay in getting their home. It also cost me a relationship with the real estate agent who referred them to me. Here’s the story…
A few years ago I was working with a first time home buyer couple who were in the process of purchasing a home. The couple was referred to me by a very prominent real estate agent in the area. The couple sailed through the loan application process and their loan was going very smoothly. I had informed them to not make any major changes in their credit as this would affect their credit report, credit scores, and possibly could negatively impact their debt to income ratios. I had informed them that if any of these things changed that they might not qualify for the loan.
Near the end of the loan approval process, during the time when the underwriter was approving the loan, the underwriter wanted to see proof of the down payment that the borrowers were going to use. The couple was planning on using around $5,000 worth of savings bonds. We had submitted copies of the bonds before they were cashed as were told to do. To prove that the funds were available for the loan settlement, we had to prove that the bonds were cashed and deposited and that they were still in the bank.
Well, we could prove that the bonds were cashed and the money was put in the bank, but unknown to me, the couple had then used the money from the bonds to purchase furniture for their new home. As a result, they had no money in the bank for their downpayment. The underwriter found this out right before we were supposed to go to settlement.
When I called the borrowers about their missing money, they told me what they did and that they were planning on using a cash advance on one of their credit cards to cover the cash that they needed for the loan. I informed them that the underwriter would not want to know this.
FHA Allows For A Gift For Down Payment and Closing Costs
Fortunately for this couple, FHA allows a gift to come from a family member to cover a down payment and closing costs. With this knowledge, I told the borrowers that if they could get some money, a gift not a loan, from a family member as a gift we could meet the guidelines to satisfy the underwriter. The borrowers got some help from their parents for their gift. We got all of the documentation that we needed and submitted it to the underwriter and the loan was approved. However, we have to move their settlement date one day.
With the settlement moving one day, the listing agent, the seller, the buyer’s agent, the title company. The sellers of this house were buying another house which was dependant on this one closing so they had to push that settlement back a day too. This was a big deal for such a seemingly small thing. But we got it all worked out and every settled a day later.
I did not like it, but I did the right thing and called everyone and took responsibility for failing to tell the borrower that they needed to wait until the home was purchased before they bought any furniture. It never came across my mind that I needed to tell them to not cash in their savings bonds as they had told me that these were for the down payment.
It was a big surprise to find out that they had spent this money on furniture. In fact, when I asked them about what they did, they said to me that it was stupid of them to do what they did in retrospect. They admitted that they weren’t thinking it was a big deal and had thought about asking me, but decided that it was okay because they had money on one of their credit cards for the cash advance. However, the real estate agent got very mad because she thought she looked bad because she had referred the customer to me and I (the lender) caused the loan to close one day late even though I was the one who called everyone involved and got it all worked out. The buyer’s agent did not have to make one phone call. Still, I never received another borrower to work with from this agent.
The lesson here for a first time home buyer, or for anyone buying a home, once you tell your loan officer your financial situation and they get you approved do not do anything major financially unless you check with your loan officer first.