One of the first steps in buying a home is getting pre-approved for financing. In our market you can’t make an offer without it. Don’t think you are done, however, when you have your pre-approval. Once you come to an agreement on a home you will move to the underwriting process. Don’t be surprised when they ask you for more documentation on your financial situation than you thought possible… and they will check your credit again shortly before closing so don’t buy a new car or boat, buy new furniture for your new home, etc before closing if it has any impact on your credit.
Below is a list of things you shouldn’t do to keep the mortgage process moving smoothly.
Don’t change jobs or the way you are paid
Your lender must be able to track the source and amount of your annual income. If possible, avoid changing from salary to commission or becoming self-employed during this period.
Don’t deposit cash into your bank accounts
Lenders need to determine the source of your funds, and cash is not easily traceable. If you will be depositing cash into your accounts, discuss with your loan officer how you should document your transactions.
Don’t make any large credit purchases like a new car or boat, or furniture for your new home
New debt comes with new monthly obligations, and new obligations create new qualifications. People with new debt have higher debt to income ratios, and higher ratios make for riskier loans. They check your credit again shortly before closing. Don’t be surprised to learn that you no longer qualify for your mortgage.
Don’t co-sign other loans for anyone
When you co-sign you are obligated, even if you swear you will not be the one making the payments and those potential payments will be counted against you. As already mentioned, with that obligation comes high ratios as well.
Don’t change bank accounts
Remember, lenders need to source and track your assets. That is much easier when there is consistency among your accounts. Speak to your loan officer before transferring any money.
Don’t apply for new credit
Whether you apply for a new credit card or buy a new car, your credit report will be run and it will have an impact on your FICO score. Your credit score will help determine not only your interest rate but also your eligibility.
Don’t close any credit accounts
People often think that closing accounts will help your credit score. Wrong. A major component of your score is your length and depth of credit history, not just your payment history… and your total usage of credit as a percentage of your total credit available. Closing accounts has a negative impact on both those determinants.
Bottom Line
Any blip in income, assets or credit can impact your loan approval. Be sure to talk to your loan officer before doing anything financial in nature.
