Thinking of applying for a mortgage? While it’s exciting to start thinking about moving in and decorating after you’ve applied for your mortgage, there are some key things to keep in mind before you close. Here’s a list of things you may not realize you need to avoid after applying for your home loan.
Don’t Deposit Large Sums of Cash
Lenders need to source your money, and cash isn’t easily traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.
Don’t Make Any Large Purchases
It’s not just home-related purchases that could disqualify you from your loan. Any large purchases can be red flags for lenders. People with new debt have higher debt-to-income ratios (how much debt you have compared to your monthly income). Since higher ratios make for riskier loans, borrowers may no longer qualify for their mortgage. Resist the temptation to make any large purchases, even for furniture or appliances.
Don’t Cosign Loans for Anyone
When you cosign for a loan, you’re making yourself accountable for that loan’s success and repayment. With that obligation comes higher debt-to-income ratios as well. Even if you promise you won’t be the one making the payments, your lender will have to count the payments against you.
Don’t Switch Bank Accounts
Lenders need to source and track your assets. That task is much easier when there’s consistency among your accounts. Before you transfer any money, speak with your loan officer.
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.), it will have an impact on your FICO® score. Lower credit scores can determine your interest rate and possibly even your eligibility for approval.
Don’t Close Any Accounts
Many buyers believe having less available credit makes them less risky and more likely to be approved. This isn’t true. A significant 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 have a negative impact on both of those aspects of your score.
Do Discuss Changes with Your Lender
Be upfront about any changes that occur or expect to occur when talking with your lender. Blips in income, assets, or credit should be reviewed and executed to ensure your home loan can still be approved. If your job or employment status has changed recently, share that with your lender. Ultimately, it’s best to fully disclose and discuss your intentions with your loan officer before you do anything financially.
Key Takeaways
You want your home purchase to go as smoothly as possible. Before making any large purchases, moving your money around, or making significant life changes, consult your lender – someone qualified to explain how your financial decisions may impact your home loan.
Avoid Mortgage Sabotage
- Don’t Buy or Lease a Vehicle – Lenders look carefully at your debt-to-income ratio. A large payment, such as a car lease or boat purchase, can significantly impact your DTI ratio and prevent you from qualifying for a mortgage. Don’t trade up to a more extensive lease.
- Don’t Move Assets Around – These transfers show up as new deposits and complicate the application process, as you must then disclose and document the source of funds for each new account. You can consolidate your accounts later if necessary.
- Don’t Change or Quit Your Job – A new job may involve a problem period, which must be satisfied before income from the new job can be considered for qualifying purposes. Don’t switch from a salaried to a commissioned job.
- Don’t Buy New Furniture or Major Appliances – If the new purchases increase the amount of debt you are responsible for monthly, this may disqualify you from getting the loan or may cut down on the funds you need to available to meet the closing costs. This includes cars, furniture, refrigerators, etc.
- Don’t Run a Credit Report on Yourself – Running your credit will show as an inquiry on your credit report. Inquiries must be explained in writing.
- Don’t Forget to Keep Paying Your Bills. Continue to make your rent payments and/or mortgage payments. Stay current on all your existing credit cards and other accounts.
- Don’t Accept a Cash Gift – Without the proper “gift” paperwork
- Don’t Open New Credit Cards including consolidating debt or credit cards.
- Don’t Attempt to Consolidate Bills – your mortgage professional can advise you should this be needed.
- Don’t Pack Required Documents – Keep important paperwork such as W2s, divorce decrees, tax returns, bank statements, ID handy, and home improvement documentation, including warranties. Missing documents may hinder your approval and closing date.
When in doubt discuss any credit issues with your lender before taking action. Contact your lender if you have questions or want to change your finances in any way.
