Doing a Mortgage Application? Here’s What You Should Avoid Once You Do.
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. Make sure you keep these important steps in mind before and after your home loan application to ensure the smoothest process possible.
Don’t Deposit Large Sums of Cash
To acquire your money, lenders must locate a traceable source of cash. Before you deposit any money into your accounts, be sure to consult with your loan officer, as they can provide guidance on the best approach for keeping track of all of your financial transactions.
Don’t Make Any Large Purchases
Home purchases aren't the only thing that could disqualify you from obtaining a loan. Major expenditures can raise red flags for loan officers. People with new debt have higher debt-to-income ratios (how much debt you have compared to your monthly income). A higher loan-to-value percentage can be more dangerous for loans, which could mean potential borrowers may not meet the requirements to secure their mortgage. Refrain from making any significant investments, such as furniture or appliances.
Don’t Cosign Loans for Anyone
When you cosign for a loan, you assume ultimate responsibility for its success and repayment. Taking on that obligation leads to having a higher debt-to-income ratio. 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 major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total credit usage as a percentage of available credit. Closing accounts has 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 that you’re expecting to occur when talking with your lender. Blips in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. If your job or employment status has changed recently, share that with your lender as well. Ultimately, it’s best to fully disclose and discuss your intentions with your loan officer before you do anything financial in nature.
You want your home purchase to go as smoothly as possible. Remember, before you make any large purchases, move your money around, or make major life changes, be sure to consult your lender—someone who’s qualified to explain how your financial decisions may impact your home loan.