One of the biggest shopping days of the year is almost here AND you’ve also made the decision to purchase a home. Deciding where you want to live, and what you want your home to look like are the fun part. But, figuring out the technical aspects obtaining a mortgage is the not-so-fun part. After you’ve gone through the loan process and have been approved for a loan, it’s easy sailing, and time to celebrate! Not so fast . . .
The time between the original check of your credit which led to your loan being approved to the loan closing is called the mortgage quiet period. This time is even more critical nowadays in this tighter economic climate, with loan writers being more vigilant about financial activities that may affect your original credit score. From the loan writers’ point of view, financial activity during the quiet period in the mortgage origination process can sometimes be a warning sign of fraud, particularly when an unscrupulous borrower attempts to take out more than one loan on a property in a scam known as “shot gunning.”
Unfortunately, then, even if you’re not a borrower who has had issues in the past, ANY financial activities you undertake during this quiet period will be subject to scrutiny. Borrowers who take on any type of installment debt may adversely affect their credit score at closing, as these debts will affect borrowers’ debt-to-income (DTI) ratio. Therefore, signing up for a store credit card as part of a Black Friday promotional offer, or financing new furniture or a vacation on a credit card may jeopardize your pending loan.
Other actions subject to a red flag by the loan officer may include withdrawing cash from any accounts that were used to verify funds for the loans, or changing jobs may be considered signs of financial instability, and are strongly discouraged during the mortgage quiet period. Even making large deposits into these same accounts could cause issues as lenders are required to source all funds in a transaction. This means they need to prove the sale of items and verify financial gifts, which can delay the loan process significantly.
Bottom line, be sure to notify your loan officer if you need to make any changes to accounts or if you need to make a large purchase, so they can be properly documented, and the loan officer can be assured of your good faith. I’m also available to answer any questions you may have about this process. I look forward to working with you in your home search!