So you got pre-approved and found a home. Now that you’re in contract on a house, don’t make these easy (and costly) mistakes that could disqualify your loan
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Congratulations! You’ve found a home to buy and have applied for a mortgage! You’re undoubtedly excited about the opportunity to decorate your new home, but before you make any large purchases, move your money around, or make any more life changes, consult your loan officer. Your loan officer is someone who will be able to tell you how your decisions will impact your home loan.
Things You Shouldn’t Do After Applying for a Mortgage. Some may seem obvious, and others definitely are not.
1. Don’t Change Jobs or the Way You Are Paid at Your Job. Your loan officer must be able to track the source and amount of your annual income. If possible, you’ll want to avoid changing from salary to commission or becoming self-employed during this time as well.
2. Don’t Pay Off a Bunch of Debt Until Your Mortgage Lender Tells You Which Ones To Pay. Almost every potential home buyer isn’t aware that if you are looking a purchasing a home anytime in the next year it is best to contact a lender and ask what debt you should pay and to what amount. If you are working with a good lender, they will be able to plug your numbers into a simulator and tell you the best route to get the best loan and interest rate. Sometimes, you have debt it may not be best to pay. That may sound strange, however you should always contact a lender to verify your situation and come up with a game plan. Perhaps you have an old small bill you didn’t know about that went to collections 6 years ago, and paying it off would actually hurt your score.
3. Don’t Deposit Cash into Your Bank Accounts. Lenders need to source your money, and cash is not really traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer. You will have to write a letter of explanaition for every penny you deposit or withdraw, so avoiding it altogether would likely be best.
4. Don’t Make Any Large Purchases Like a New Car or Furniture. New debt likely comes with it, including new monthly obligations. Or, you could be reducing the amount of reserves needed in your account and that could make you UN-approved to purchase a home. New obligations create new qualifications. People with new debt have higher debt to income ratios, and higher ratios make for riskier loans and possibly even higher interest rates. Again, sometimes qualified borrowers no longer qualify.
5. Don’t Co-Sign Other Loans for Anyone. When you co-sign, you are obligated. As we mentioned, with that obligation comes higher debt ratios. Even if you swear you will not be the one making the payments, your lender will have to count the payments against you.
6. Don’t Change Bank Accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is consistency among your accounts. Before you even transfer any money, talk to your loan officer.
7. Don’t Apply for New Credit. It doesn’t matter whether it’s a new credit card or a new car. When you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your credit scores with some or all of the 3 bureaus will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.
8. Don’t Close Any Credit Accounts. Many clients erroneously believe that having less available credit makes them less risky and more likely to be approved. Wrong. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those determinants in your score.
Bottom Line
Any blip in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. The best advice is to fully disclose and discuss your plans with your loan officer before you do anything financial in nature. They are there to guide you through the process.
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Disclaimer: This article shall be deemed reliable but cannot guaranteed, and is not intended as legal advice. Individual results may vary.
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