Congratulations! You’re approved! Now what?
Whether you’re an investor or a business owner, you are now one step closer to reaching your goals – which can be very exciting! However, this is also a crucial time. With the amount of risk your lender is taking on in issuing the loan, there are bound to be several moving parts and hoops to jump through before officially closing and receiving that check.
A loan approval is based on a snapshot of your current financials; thus it is imperative that you treat this stage like an overall freeze in your money movement. You don’t want to make a move that causes the lender to reassess your risk and delay or cancel your loan – all because you made a huge purchase too soon or because you filed your taxes at the wrong time.
Unfortunately, not following this “freeze” rule is the number one biggest hurdle that we experience with our clients when it comes to delays and changes in loans. Many people don’t realize this freeze is all-encompassing, and they end up making a decision that either adds months of delays or cancels their loan altogether. That is why, to help you close your loan in the most efficient way possible, we have compiled a list of common mistakes that could hold up or cancel your loan.
No Large Purchases
Whether or not you need the loan money to achieve the lifestyle you’re aiming for, it’s so important that you hold off on making any large purchases. Buying a car, boat, plane, home, or otherwise will change your finances just enough to make an impact. Making these large purchases not only affects your liquidity but could also affect your income-to-debt ratio and your credit. It’s important to note that credit inquiries alone could trigger a warning to your lender that something is awry.
No Selling of Assets
Hold off on selling any buildings, land parcels, homes, and other large-ticket assets until your loan is closed and your funds are issued. Your assets are listed as part of your loan agreement, and a change in ownership can affect your net worth. Changing your net worth can cause a change in your allotted loan amount or even cancel your loan all together.
No Divorces – Romantic or Professional!
Divorces force the parties involved to divide their assets and wealth. Entering into a divorce or a partner buyout during the process of your loan closing will definitely cause the loan to stall or cancel.
Do Not Apply for Credit of Any Type, Anywhere
Almost every loan requires that the borrower have and maintain a certain threshold of “good” credit. Whereas the definition of “good” may vary between lenders, changes in credit can trigger a reevaluation of your loan. Therefore, you should avoid major inquiries such as those that occur when opening new credit cards or making large purchases (such as cars or other financed items) and your lender will see you as a trustworthy adult.
Note: This also applies to co-signing! No co-signing until your loan is closed!
No Transferring Large Amounts of Cash
Due to regulations aimed at preventing terrorism, drug trafficking and money laundering, lenders are required to examine where your income/money came from. Therefore, you should avoid unusual transfers or payments that amount to more than 10-25% of transaction amounts typical to those used in your normal course of business. This means no gifts, no major money going in or out of your accounts and no personal loans to your family members!
Before closing, your lender will track the sources of your money, and require at least a 60-day seasoning (at least 60 days of that cash in your accounts and not “under your mattress”). Typically they do this by requiring at least two bank statements confirming your liquidity and its sources.
No Fibbing or Exaggerating… Ever
Perhaps the most important rule of all is to be HONEST with your lender. You may feel pressured to “fluff” your application out of fear that you won’t be approved, but you should avoid doing this at all costs. If there is a problem or a bluff, it will more than likely be sniffed out by closing – and you’ll end up not only stalling or canceling your loan, but also losing the trust of your lender and those involved in the closing. Being upfront with your strengths and weaknesses will ensure the smoothest path to closing and may also help your loan specialist or lender strategize to give you the best loan options available for your needs and for your future.
If asked for a letter of explanation, realize the importance of taking responsibility. Don’t transfer the blame. Just give facts, what occurred, and how you fixed it.
Bottom line – don’t make any major moves.
If your loan is important to you – as it should be – then everything else can wait. Once your loan is closed and you can follow through with your commercial investment as planned, then you can celebrate and upgrade your life. Until then, sit tight until your name is signed on the bottom line and the funds are in your account!