3 Red Flags When Applying for a Mortgage

More lenders are scrutinizing mortgage applications since the financial crisis fallout, which has triggered fears of borrowers who will default or walk-away from their mortgage or mortgage fraud.

Here are the triggers that may cause the most lender scrutiny of loan applications, according to a recent article at The New York Times:

Large deposits of money: Lenders are required to account for any cash gifts for down payments, such as from relatives. So if a borrower earns $5,000 a month and suddenly deposits an extra $10,000 beyond that, lenders may question where the money came from when applying for a loan.

The home’s new address: Buyers who are purchasing a primary home three hours from where they work may also draw increased scrutiny from lenders, according to The New York Times article. Borrowers may even need a letter from their employer stating that they work from home a few times a week. That’s because lenders may want to ensure the borrower plans to be an owner-occupant and not buying the property to rent or flip, which must be disclosed.

Signing up for new credit cards: Borrowers should avoid taking on extra debt when applying for a loan — so they may want to wait to buy all the new furniture. Extra debt can be a red flag to a lender and could even jeopardize closing on a new home if the debt pushes the borrower’s total debt levels beyond lender-accepted limits.

Source: “Mortgages: Triggers of Lender Scrutiny,” The New York Times (Nov. 3, 2011)

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