Holiday Season Reminders for Your Homebuying Process
The holidays are unfortunately the time of the year where we see more loans fall through and not make it to the closing table because clients start shopping for the holidays and no longer have the funds in their accounts that they need for closing.
According to the data released under the Home Mortgage Disclosure Act (HMDA), the overall denial rate on applications for conventional and nonconventional home-purchase loans was 8.9% in 2019. The percentage of home purchase loans denied in 2019 for insufficient cash to close was 5.4%. (2019 Mortgage Market Activity and Trends (consumerfinance.gov))
When making holiday travel or gift plans, please be mindful of the funds that you will need for closing (down payment/closing costs).
Tips to make sure your loan does not fall through during the holiday season:
- Designate one account for your closing funds and a separate one for holiday spending – only use the designated accounts for your holiday shopping to make sure your money that is set aside for closing stays safe.
- Limit your spending before closing – use cash or wait until after you close on your loan to make your purchases if possible.
- Utilize store layaway programs (if available) – make sure that you read the fine print and that they do not require a credit check to put items on layaway.
- Do not max out or over charge your existing credit cards – by maxing out your credit cards not only are you increasing your debt to income ratios, but you’re also increasing the credit usage for that account which is one of the easiest ways to bring down your credit score.
- Do not apply for any new credit or an increased credit line – credit applications and credit limit increases can both trigger credit inquiries which can bring your credit scores down.
- Do not overdraw your bank accounts, always maintain a positive balance.
If you do accidentally overdraw your account and are short funds to close, please contact me immediately so that we can come up with a plan to save your loan the more time that goes by the harder it is to bring a loan back.
Some tips if you do overdraw your account:
- Do not wait to tell me.
- Do not deposit cash, we cannot source cash deposits and cash cannot be used as funds for closing.
- Do not accept gift funds without speaking to me first, not all loan programs accept the use of gift funds and we will also have to source the gift as a large deposit and have a signed gift letter from the donor.
Have a safe and happy holiday!