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    Lender Red Flags

    Many buyers have expressed to us frustration with the loan application and underwriting process these days. We try to give you a heads up about what to expect and why regulations are so much tighter. A recent article in the NY Times called Triggers for Lender Security helps to shed some light on what banks may find suspicious and why. Remember that at the end of the day, it’s all about avoiding fraud which is ultimately a good thing. Knowing what not to do (like opening a new line of credit during the application process) and/or recognizing what may be an issue during the loan application process (you’re getting a cash gift from your folks for a down payment) and addressing these issues upfront with your lender will help to avoid a lot of headaches.

    The article cites four specific things that are considered red flags for a lender:

    1. Large deposits in your accounts. What is considered large? It depends on your financial situation. Anything that is significantly larger than your paychecks or regular deposits. Anything that is seen to be outside of your normal banking habits.

    2. Your address. The article gives examples of the home you want to purchase being hours away from your work address or a family of five buying a 1BR apartment. What the banks are asking themselves is whether you are really purchasing the property to live in as your principal residence.

    3. Taking on New Debt. Don’t open a new credit card or buy a new car or furniture. Try to maintain normal spending habits and avoid making larger purchases until after you close on the house. It can slow down the process or push your debt to income ratios over the acceptable limit altogether.

    4. Income Discrepancies. Do you earn an above average salary for your profession? Has your employment status recently changed? Given all of the talk of stated income loans, lenders just want to make sure that your income is accurate and makes sense.

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