#1 Worst Mistake Consumers Make When Taking Out A Mortgage, Surprising Answer

Tight lending guidelines, restrictive loan qualifying, and lack of available credit continues to dominate today’s world of mortgage lending. Despite the fact consumers need to show full income, all liabilities, explain previous job history, credit challenges and the list goes on, what many don’t realize, is there something else more ominous lenders’ have their feelers out for that exists in every home loan application.

Acceptable funds for the transaction

  1. Whose funds are being used?
  2. Where did the money originate from?

Bank Statements Only Share Half The Story

Bank statements show the available funds for use in the transaction, but are these funds legitimate?

*Lenders will be especially keen on inconsistent and random cash deposits going into a bank account. Simple as this may sound, this causes more problems and challenges for consumers trying to secure mortgages today, than the debt to income ratio or any other credit characteristic.

If: any bank statement deposit is more than 25% of your income

Then: monies will have to be sourced with a clear letter of explanation, potential gift letter if the money came in the form of a gift, along with a bank statement from the person gifting that money showing they had the ability to do so

If: any deposits are less than 25% of your income

Then: these funds can be used in the transaction although consumer may be asked to explain where the funds came from, however, no sourcing/paper trailing will be needed

If: cash is from side job/side work

Then: if needed for the transaction, money will have to be “seasoned”  for a period of 60 days, meaning those funds are ineligible for use in the loan transaction until two statement cycles have surpassed thus making those funds eligible

If: deposit is gift money

Then: the person giving the gift needs to show on paper a clear ability for them to gift money to the recipient,  in other words, a friend of the person giving the gift can’t make a deposit in giftor’s account without getting a clear and concise explanation including a gift letter and subsequent paper trail with bank statements showing where funds originated and where funds ended up.

If: additional reserves are needed, i.e.  two months of mortgage payments liquid in the bank (typically needed)

Then: consumer must meet 60 day seasoning requirement, unless funds are from paychecks in the normal course of pay periods.

What This Consumer Mortgage Mistake Costs

Should any one of the above referenced scenarios take place, plan on a longer close of escrow and a subsequent longer interest rate lock. The longer a transaction takes, the higher the cost. Circumstances like gathering together financial documentation last minute, sourcing monies and/or getting contractual purchase contract extensions which often run as high as $100 per day for every day the transaction does not close on time, are all examples how important timing is.

It is ideally in the best interest of the consumer to handle the paper trailing concerns and credit characteristics with the lender upfront, so it doesn’t become an issue later on when loan contingencies need to be removed or when the refinance slated to close is delayed because an updated statement shows deposits inconsistent with the borrower’s income. Contact Scott.Sheldon@nafinc.com for your next mortgage!

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RELATED MORTGAGE ADVICE FROM SCOTT SHELDON

When buying a home, it’s natural to want the lowest mortgage rate possible. But sometimes, chasing a slightly better rate from another lender—especially after your offer has already been accepted—can backfire in a big way. Let’s walk through a real-world scenario. You’ve got an offer accepted on a house. You’re working with a lender who has you approved, documents in underwriting, and a 21-day close of escrow in place. Everything is moving forward. Then you hear from another lender offering a rate that’s 0.25% lower, with slightly better closing costs. It’s tempting. But before you make a jump, here’s what you need to consider. Switching Lenders Comes with Time Costs When you pivot to a new lender mid-contract, they’ll need to: Re-underwrite your entire loan, Order a new appraisal, Disclose and sign new loan documents, Submit the file for final loan approval, Schedule and fund closing—all over again. This doesn’t happen overnight. Even in ideal circumstances, the new lender is likely going to need at least 25–30 days to close. If you’re in a fast-moving or competitive market, this is a real problem. Most sellers won’t grant a contract extension just because you’re switching lenders. So, what happens next? A Contract Extension Can Jeopardize Your Deal Asking for a contract extension means the seller must agree to delay closing. But that delay introduces risk—especially if the seller has backup offers or simply wants certainty. They may not grant the extension. Or worse, they could cancel the deal outright and take another buyer’s offer. Even if the seller agrees to extend, your earnest money and negotiation power could take a hit. And for what? A slightly lower rate that might save you $50 to $75 a month? Mortgage Rates Aren’t as Far Apart as You Think Here’s the truth: all mortgage lenders get their money from the same place—the bond market. The pricing differences between lenders usually range from 0.125% to 0.25% in rate on any given day. If one lender seems to be offering dramatically better pricing, the first thing you should ask is: How? Head over to FreddieMac.com and check the average 30-year fixed rate posted weekly. This is one of the most reliable benchmarks for where rates truly stand in the market. If a lender is quoting you a rate that’s well below that average, ask for the details: Are they charging extra points? Is this a teaser rate with a prepayment penalty? Is it based on a different loan product or risky structure? Often, what sounds “too good to be true”… is. Consider the Bigger Picture Think long-term. If you’re financing $600,000, a 0.25% lower rate may reduce your payment by roughly $75/month. But what if you lose the house and have to start over? That monthly savings doesn’t mean much if you’re outbid on your dream home or lose your deposit. Also, remember: you’re not going to keep this rate forever. Today’s homebuyers typically refinance when rates drop by about 0.75% or more. So if rates fall within the next year or two, you’ll likely be refinancing anyway. Instead of paying extra points now or risking the entire deal for a minor monthly savings, it may be better to accept a slightly higher rate—knowing you’ll refinance when the time is right. The Real Risk Isn’t the Rate—It’s the Delay When shopping for a home loan, don’t just ask, “What’s your rate?” Ask: Can you close on time? Is this rate sustainable or based on hidden costs? Will switching lenders delay or jeopardize my contract? A home purchase contract is a binding agreement between you and the seller to perform within a set timeframe. If you can’t meet those dates because you're chasing a slightly better rate elsewhere, you may want to reconsider if now is the right time to buy. Final Thoughts Yes, interest rates matter. But execution matters more. Before making a switch mid-transaction, talk to your lender. Have an honest conversation about pricing, timelines, and strategy. You might find that staying the course, securing the house, and planning to refinance later offers a better path to financial security. Want to Know Your Options? Let’s compare rates and strategies the smart way—without risking your dream home. 👉 Click here to get a custom rate quote today.

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