Avoid These Common Mistakes After Applying for a Mortgage
If you’re getting ready to buy a home, it’s exciting to jump a few steps ahead and think about moving in and making it your own. But before you get too far down the emotional path, there are some key things to keep in mind after you apply for your mortgage and before you close. Here’s a list of things to remember when you apply for your home loan.
Don’t Deposit Large Sums of Cash
Lenders must trace the source of your funds, and cash transactions are difficult to track. Before depositing any cash into your accounts, it's crucial to discuss the correct documentation procedures with your loan officer.
Don’t Make Any Large Purchases
It's not only purchases related to homes that might jeopardize your loan approval. Any significant purchases can raise concerns for lenders. Individuals acquiring new debt tend to have higher debt-to-income ratios, indicating a greater amount of debt compared to their monthly income. As higher ratios increase the risk associated with loans, borrowers may find themselves ineligible for their mortgages. It's advisable to avoid making any substantial purchases, including those for furniture or appliances, to mitigate these risks.
Don’t Cosign Loans for Anyone
When you agree to cosign a loan, you're assuming responsibility for the loan's success and repayment. This responsibility leads to higher debt-to-income ratios. Even if you assure that you won't be the one making the payments, your lender will still consider them as part of your financial obligations.
Don’t Switch Bank Accounts
Lenders are required to verify and monitor your assets, which is simplified when there's consistency across your accounts. Prior to transferring any funds, it's advisable to consult with your loan officer.
Don’t Apply for New Credit
Whether it's a recent credit card application or a new car purchase, when your credit report is accessed by various financial entities (such as mortgage, credit card, auto lenders, etc.), it can affect your FICO® score. Lower credit scores may impact your interest rate and could even affect your approval eligibility.
Don’t Close Any Accounts
Numerous buyers mistakenly assume that reducing available credit makes them appear less risky and increases their chances of approval. However, this is inaccurate. A significant factor in your credit score is the length and depth of your credit history, in addition to your total credit utilization ratio. Closing accounts negatively affects both aspects of your score.
Do Discuss Changes with Your Lender
When communicating with your lender, ensure transparency regarding any recent or anticipated changes. Fluctuations in income, assets, or credit should be addressed and managed in a manner that safeguards the approval of your home loan. If there have been recent changes in your job or employment status, it's essential to disclose this information to your lender. Ultimately, it's advisable to openly discuss your intentions with your loan officer before making any financial decisions.
Bottom Line
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. When you’re ready to get the process started, let’s connect.
