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What are underwriting red flags?
If you're thinking of getting a home loan, it would be a good idea to consult with a licensed mortgage professional well in advance. I say this not because it's just a plain good idea, but, it's also to evaluate your entire credit picture and take corrective actions on things that are considered red flags to underwriters.
As we go through our day to day routine, we all get into habits, mostly due to convenience. Although there's nothing inherently wrong with what we're doing; we don't give any thought to how others would view it. When it comes to a home loan though, what the underwriter thinks is critical. If you make an underwriter feel uncomfortable, you're going to have a hard time getting loan approval. Here are a few things to watch out for, and not do anymore, if you're considering a home loan:
I don't think anything makes an underwriter twitch more than payday loans. The problem with them is you can't get just one; generally, people get one of these loans to pay off another. If you consistently need a payday loan to get through the week chances are pretty good you're not managing you're money well enough and therefore, should not be thinking about a commitment as significant as a mortgage. I get it though; life happens, and sometimes you need to do what you need to do. That said, to prevent your underwriter from having a hissy fit…, stop these loan types at least three months before applying for a home loan.
Negative bank balances
We all make accounting mistakes from time to time. But, if your ending bank balance is always negative; you're going to have a problem in underwriting. When the underwriter reviews your file, if your ending balances are negative, your home loan is likely not going to be approved.
Overdrafts and NSF fees
Every bank statement shows how much money you've paid in overdraft and NSF fees year to date. If you have more than two or three, it's considered a pattern of irresponsibility. The fact that your bank automatically pays the bill for you is irrelevant; you're writing checks and paying bills when you don't have the money to pay them.
Whether it's from savings to checking, or, from one account to another, or from mom and dad to you and then back; excessive funds transfers drive underwriters crazy. Making this a habit won't cause a home loan denial, but, it is going to require you to document all of these transactions into your account; regardless of the source. Trust me; you want to avoid all of the paperwork it'll take to explain this. Steer clear of regular transfers before applying for your home loan.
Authorized user accounts
If you are an authorized user on all, or most of the tradelines appearing on your credit report, that is a huge red flag. Even if it isn't the case; this makes it look like you've added yourself to other peoples credit accounts specifically to bulk up your credit score. Since you don't have a credit history of your own, the underwriter is going to take issue with this. Building your credit by obtaining a secured credit card from your bank or credit union is the best way to go.
These examples are just a few of the most common scenarios we see when working with our clients. All of these problematic habits can be corrected easily; we merely have to make sure they're corrected well in advance of your mortgage application.
If applying for a home loan is in your plans, contact a mortgage professional now for a review of your overall credit profile. Doing so, and making a plan together will guarantee that you'll have a smooth and stress-free loan process from start to finish!
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