Congratulations! You’re finally ready to apply for a mortgage or have gotten pre-approved. While this understandably provides a sense of relief, it’s not a done deal until you sign your closing papers. Whether you’re buying a new home or refinancing your current one, there are certain things you can do that could give the underwriter the impression that you will not repay your loan and could jeopardize your loan status. Before you make any big purchases, move any money around, or make any big-time life changes, consult your loan officer. They will be able to tell you how your decision will impact your home loan.
With that in mind, here are EIGHT things you should never do right before or after you apply for a mortgage:
1. DON’T: Change jobs! Proof of a steady income, especially in the same industry, is one of the most important aspects of a mortgage approval. Avoid switching jobs until your loan has closed, if at all possible. If you must switch jobs, be sure your new job is in the same industry as your old one.
2. 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.
3. DON’T: Make large purchases on credit. While it can be tempting to want to furnish your new home or park a brand new car in your new driveway, avoid making any large purchases on credit. This raises your DTI. It also adds inquiries to your credit report, which can lower your score and raise a red flag to lenders.
You can, however, continue to use your credit as normal. Make small purchases and pay them off, if possible, to continue to show that your debt to income ratio is stable and your spending is in control.
4. DON’T: Co-sign other loans for anyone. When you co-sign, you are obligated. As we mentioned, with that obligation comes higher ratios as well. Even if you swear you will not be the one making the payments, your lender will have to count the payment against you.
5. 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 money between accounts, talk to your loan officer.
6. 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 FICO score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.
7. DON’T: Close credit accounts. Many clients have erroneously believed 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 those determinants of your score.
8. DON’T: Make payments on collection accounts. If you make payments on an old collection account, the account is considered “current.” This can actually drop your credit score and hurt your chances of getting approved. In addition, making payments on old collections can revive their collection status, as a creditor is only able to pursue you for payment for 7-10 years from the date of the last payment that was made (depending on the state in which you live). Making a payment on a collection account can revive it from the “dead,” so to speak, and you could be on the hook for it for many years to come. If it is nearing the 7-10 year mark, sometimes it’s best to just let it be so that it’ll fall quietly off your credit report.
It’s now more difficult to get a mortgage loan. As a homebuyer, you don’t want anything to jeopardize the purchase of your dream house. Getting approved for a mortgage is one of the most important steps in the property buying process.
By making wise decisions in how you manage and use your money before you apply for a mortgage, you increase the chances of getting the home loan that meets your need.
For up-to-date information on YOUR Indiana area neighborhood or a FREE Seller Consultation – call The Romanski Group at (765) 293.9200. Using an experienced team is the way to get your home SOLD! You deserve the BEST Realtor in the Lafayette Indiana area!