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It’s no secret that buying an apartment in New York is hard. Finding just the right place, competing with other buyers, and ultimately forking over enough money to claim your piece of the city—the process is stressful and unpredictable. If you have managed to save enough for the sizable down payment most of the city’s properties require, you don’t want to be held up by something as minor as a mortgage application.
But there are common mistakes first-time apartment buyers make that can significantly hold up the entire buying process, and many stem from decisions one might never think of as related to getting a mortgage.
Following the 2008 mortgage crisis, lenders have become more cautious in regards to which applications they approve, making the already difficult process even more fraught. We spoke with Jason Bates, a mortgage consultant at the firm American Financing, about the pitfalls of mortgage applications.
First thing's first: “One of the biggest things we recommend is to start the process of buying a home by getting your financing lined up,” Bates says.
If you're cruising open houses in Brooklyn and stumble across your dream one-bedroom in Bedford-Stuyvesant about two months before you were actually planning to buy, it’s likely you won’t be ready with a down payment in time.
Between 30 to 60 days before you start the hunt, find a reputable lender and work with them to get all the required documents in order. "Then when you do find the right property, you’ll be ready to make an offer right away," Bates says.
Here are five things to watch out for that can screw up your mortgage application without you even realizing it:
1) Depositing large sums is a no-no
When considering whether to give you a mortgage, lenders will analyze your bank account over the last two months to see how much money you have and exactly where that money came from. Transparency and documentation are key to this piece, according to Bates.
It’s common for people to move around money around the time they're apartment shopping—say you want to transfer funds from an investment account for your down payment, or you receive a financial gift from your family to buy a place. Nevertheless, leading up to, and during the mortgage process, moving large sums of money—think more than $1,000—will be a red flag to lenders. So be prepared to present documentation on how you got it.
Also, Bates recommends avoiding cash deposits at all costs.
"Cash is almost impossible to source," he says. "Don’t move cash into your account until you’ve talked to your mortgage consultant or loan officer first."
If you want to avoid these types of questions from lenders, consider using "seasoned funds" for your down payment. Basically, seasoned funds are funds that have been in your bank account for at least the last 60 days. To properly season your funds, just get your money together, stick it in a bank account (a separate account for your down payment is a good idea), and wait 60 days before applying for a loan.
2) Withdrawing large sums is off-limits, too
Just like you don’t want lots of money magically appearing into your account, you don’t want it disappearing either. Lenders will question that $5,000 loan you gave to your cousin, or any big-ticket items your splurged on in anticipation of getting a new apartment. Withdrawing lots of money at once can affect your debt-to-income ratio, which lenders will take a look into and request documentation for. Simply put, it’s another issue that could potentially delay the loan processing.
3) Keep your credit card use under control
Thinking about putting that pricey piece of furniture on a credit card? Don’t do it, says Bates.
"We’re required to show a buyer has the ability to repay their loan, so we ask buyers not to do anything that affects their credit scores or overall credit profile," he says.
That means you shouldn’t rack up big purchases on your existing credit card, or open up a new credit card. Both will affect your credit score and that debt-to-income ratio, which is something lenders track closely. That means you should be keeping up on all your credit card payments, too.
4) Try not to change jobs
Hold off on that job change until after you’ve bought a house, as your loan will be based off the salary at your current job. Bates also warns against changing job statuses, like going from a W-2 to a contractor position, which can prompt even more paperwork.
"In cases where someone does change their employment in the middle of the process, it can create additional requirements from underwriters, [which] can possibly delay the approvals process," he says.
5) Don't keep secrets from your lender
Honesty is the best policy from the get-go when you begin applying for a mortgage. Be up front about any changes within your bank accounts, your salary, employment status, credit card use, and any other financial matters that come up in the application process.
With all your information at hand, a good lender can make the process as seamless as possible.
"Mortgage loans aren’t cookie-cutter… they’re very borrower-specific," Bates says. "A lender needs to take the time to understand not just what the borrower wants, but what their specific situation is."
As the prospective buyer, it's your job to make understanding easier for them.
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