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-Don't Move Money Around
When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, 401K and retirement accounts.
If you have been moving money between accounts during that time, watch out for large deposits and withdrawals. The mortgage underwriter will probably require a complete paper trail of all the withdrawals and deposits. You may be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious if not exasperating.
Do not doubt the due diligence of your lender, as they are only doing their job correctly. To ensure quality control and eliminate potential fraud, it is a requirement on many loans to completely document the source of all funds. Moving your money around, even if you are consolidating your funds to make money management easier, could make it more difficult for documentation and verification.
Therefore, leave your money where it is until you talk to a loan officer.
-Don't Buy a Car
When an individual's income starts growing and they manage to set aside some savings, they commonly experience what may be considered an instinct of modern civilized mankind: the desire to spend money.
Since North Americans have a special love affair with the automobile, it usually represents a high priority. Later in life, other priorities will be added, and one of those will probably be a house. However, by the time home ownership has become more than a distant and hopeful dream, you may have already bought the car.
It happens all the time, sometimes just before you contact a lender to get pre-qualified for a mortgage. As part of the interview, you may tell the loan officer your target price. He or she will ask about your income, savings and debts, and then he or she will offer an opinion: "If only you didn't have this car payment," it might begin, "you would certainly qualify for a home loan." Reducing the amount you owe to creditors lowers your debt-to-income ratio and thus increases your chances of affording your dream home. A debt-to-income ratio is the percentage of your gross monthly income (before taxes) that you spend on debt.
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