6 surprising roadblocks than can mess up your mortgage application
There's no question that the biggest thing standing between most of us and home ownership is the absurdly high cost of New York real estate. But even if you have managed to squirrel away the sizable down payment most properties here demand, getting a mortgage isn't necessarily a snap.
Especially in this post-financial crisis era, lenders are wary about throwing their backing behind just anybody. And even if you think you're the perfect applicant, unexpected snafus can stop your financing in its tracks. Below, six roadblocks to nip in the bud before you're sitting at the closing table:
UNEXPECTED CASH FLOW—IN EITHER DIRECTION
One woman we know saw a mortgage application nearly go south after she withdrew a large sum of cash to lend to a friend for a family emergency depositing it back in cash. What she saw as a mitzvah, the bank questioned the transactions.
On the flip side, even if you have cash coming in, most banks will want it carefully accounted for. "A lot of times when people are looking to buy, they're moving money around and liquidating assets," says Citi Habitats broker Rory Bolger. "But deposits of $1,000 or more often must be sourced."
And if your parents (or some other relative) are splashing out cash to help you put together a down payment, you'll need to explain that one to the bank, too, says Century 21 agent Rebekah Metz. "Typically there has to be a gift letter of some sort acknowledging that it’s a gift and there’s no expectation of repayment," she explains. (Maybe not a bad idea to get one of these any time someone lends you money, period.)
A LAST-MINUTE CAREER CHANGE
Even if you're leaving your old job behind for a higher-paying gig, multiple sources warned of us changing your primary source of income during the middle of a mortgage application. "I had a client quit his job during a refinance," says Bolger. "He was trying to refinance at a lower rate, and ultimately wasn't able to do it. Your employment must be verified and the criteria may vary—status changes such as a move from a salaried to a commission position can throw it off." Bolger also cites leaves of absence or the use of bonus and overtime income as irregularities that can throw a wrench in the works.
And while lender policies vary, you can expect a lot of them to want proof that your new income stream is a steady one. "We would require 30 days job time and a pay stub history for that time," says Brittney Baldwin, a loan officer with NCB Cooperative Bank. "It would delay your closing."
GOING OVERBOARD AT IKEA (OR WEST ELM)
Tempting though it may be to start the nesting process before you move, you might want to hold off until the ink has dried on your mortgage. "One of the major things that's new over the last couple of years is that we do a credit inquiry at the very end of the process," says Baldwin. "I typically warn customers not to go out and purchase furniture or appliances until after they've closed, because the slightest thing could affect your mortgage as far as the debt-to-income ratio." In other words, even if you've got a plan to pay them off, save the big ticket purchases until you're sure you've got things settled.
PICKING A TRICKY BUILDING
As we've written before, there are a number of apartment building-specific situations that can makes banks balk, such as unbalanced financials, ongoing litigation, or even one person owning too many of the building's units. But even if you're purchasing a standalone home, that can come with complications of its own, says Peter Costakos, a Brooklyn branch manager for Mortgage Master. If you're buying a fixer-upper, for instance, you may need another type of financing altogether. "We had a client come to us with a house that didn't have a furnace, and all the bathrooms were gutted," he says. "Now, you can get a mortgage for this kind of house, but it would have to be a construction mortgage or a rehabilitation mortgage. If you're looking for conventional financing, which costs less, you might not be able to find it."
Another common problem for buyers looking to buy outer-borough investment properties: an inaccurate certificate of occupancy. "You see a lot of townhomes that originally weren't multi-families where there might be violations," says Costakos. "Somebody who's using a single-family home as a three-family, or filed permits to change the C of O but didn't close them out." If your prospective new home is a multi-family (i.e. part of it's being rented out), make sure all the paperwork is correctly in place so you don't hit any last-minute snags. (It goes without saying: Do your due diligence before you finalize any sale.)
THE WRONG KIND OF CREDIT CARD DEBT
Yes, you probably know that too much debt of any kind can damage your all important debt-to-income ratio in the eyes of lenders. But even if you've been using—and paying off—credit cards responsibly for years, if they're not in your name, banks might not be impressed. This is a particularly common problem for younger buyers who've been introduced to the world of credit as authorized users on their parents' cards, says Costakas. "If your credit history is 100 percent as an authorized user, even if you have a great credit score, you might not get a mortgage because the credit isn't truly yours," he explains. If you're thinking of buying soon and don't have any credit lines of your own, it's time to leave the nest.
AN UNCOUTH OUTDOOR AREA
Another area where you'll frequently run into permit problems: outdoor space. Prospective buyers should look into the paperwork on "anything that comes off the existing structure" like a deck or balcony, warns Costakos. "If you see a beautiful deck, don't assume the permits were obtained," he says. "A good broker will ask up front, and a good attorney will probably ask up front." If the work wasn't completely above board, it might not be the end of the world, as it's possible to get the structure inspected and get permits retroactively. (Another, less fun solution: agreeing to tear down the off-the-books deck or balcony in question.) "As long as both [the buyer and seller] agree to hang in there, they may do it," Costakos tells us. "If it was built the right way, you can get [the permits] done, though it may add months to the process."
Related:
Landing a mortgage as a freelancer: not just a pipe dream
6 NYC building types where it's hard to get a mortgage (and how to get one anyway)
Have little to no credit? It may have just gotten easier for you to get a mortgage
