What NOT to do Before & During Mortgage Approval
by Angela Quinn, Broker/Owner, Bombay Mortgage
When looking to purchase a home, you don’t want anything to jeopardize your chances of closing on that dream home you’ve selected. It’s important to prepare to be a good candidate to get that mortgage loan and make sure it closes. Making any of the following mistakes could reduce the amount of financing you qualify for; change the loan product you applied for or cause a lender to deny your mortgage loan application all together.
1. Do Not Make Any New Credit Purchases
Taking on additional debt before or during the loan process with affect your debt to income and decrease your credit score. Do not think just because you’ve been approved, you’re in the clear. Lenders will check your credit score just prior to closing. If there is a change this will trigger a red flag and may cost you the loan all together. As tempting as it is to go use your credit cards to purchase that new refrigerator or furniture before you close on the home – Don’t Do It.
NO major purchases – No Furniture, Cars, Boats, Jewelry, Appliances, etc.
Wait until after closing.
2. Do Not Open or Apply for New Credit
Credit card companies send enticing letters stating we are pre-approved, offer percentages off if we open a new store card, etc. Though it may seem enticing to just go ahead and open it, thinking it won’t hit your credit report during this time. Don’t take the chance. This will lower your score and show a new credit inquiry. This will only make the lender ask questions. A new open tradeline could jeopardize approval.
3. Do Not Pay Off Charges or Collections
Unless this is something you’ve done months before applying for a mortgage loan, do not do anything that could change your FICO score. Some collections or charge offs do not even need to be paid off to obtain a mortgage loan. It is sometimes very difficult and time consuming if things have been paid off just prior to or during the application process to provide proper documents to the credit companies for removal or to have underwriting sign off of. It’s better to discuss with your Loan Officer before making any adjustments to credit during this time.
4. Do Not Change Bank Accounts
Once you have applied for a mortgage loan, one of the items you will need to provide are copies of your bank statements for the last two months. This is done to confirm you have enough cash for the closing and reserves, and to establish a history. Changing bank accounts will trigger the underwriter to question the reason why and will require a paper trail to explain and prove the action taken. This could slow down the process and you might not meet your closing date.
5. Do Not Make Unusual or Large Deposits or Withdrawals to Your Bank Account
There are two actions the underwriter takes to review the bank statements you provide. They will look at your withdrawals and the deposits. Anything that may look out of the ordinary history will be scrutinized. Large deposits other than from your normal income will need to be sourced. This means a paper trail proving where the money came from and why. If you are getting a gift from a family member to help you with the down payment or closing costs this can be sourced with a gift letter and receipt of the funds leaving their account and deposit receipt to your account. The same for large withdrawals that are out of the ordinary. The lender may require a paper trail as well to document the activity.
6. Do Not Close a Credit Card Account
If you have done some credit cleaning and have paid off a credit card prior to making application, it’s not always in your best interest to close the account as well. This could actually lower your credit score instead of increasing it. Leaving it open increased your available credit which could increase your score if you keep a zero or less than 10% balance of used credit.
7. Do Not Co-Sign on a Loan
By co-signing on a loan, though not actually your loan you are responsible for the debt and it will show up on your credit report as new debt. You are now attached to whom you co-signed for. So anytime they are late or skip a payment completely, this will show negatively on your credit as well.
8. Switching or Changing Your Job
Lenders ideally like to see a two-year history of job consistency. Making a career change weeks before applying for a loan might hurt your chances to qualify for a mortgage. A lender will want to make sure you have a stable source of income and can afford to pay the new mortgage. Lenders will complete a verification of employment just days before closing to verify you are still employed and in good standing with your employer. NEVER quit or change your job during the application process or prior to closing.
9. Get Pre-Approved
If you just are not sure about the process and uncomfortable looking at homes not knowing what you might qualify for – Get Pre-Approved. This will allow your realtor to do the best job they can for you by limiting your search and providing homes that fall within your means. It also will give you a starting point and allow you to be confident in the purchase process.
10. If You’re Not Sure Ask
Buying a home is one of the biggest purchases people make. There are always questions that may come up along the way. Reach out and ask if you’re not sure. We are here to help make that home purchase a reality. You may not be ready just yet to make that move. That’s ok. This is our profession and we are here to help you get into your home.
Angela is the Broker/Owner of Bombay Mortgage. She has over 30 years experience in the mortgage financing industry and understands each transaction is a personal journey. Born and raised in Venice, Florida, she believes building relationships leads to dynamic partnerships that can dramatically improve our neighborhoods and communities.
“Communication is key and working closely with the borrowers and realtors provides the best outcome. There is never a question that shouldn’t be asked. This is a very complex process and if everyone is on the same page, we can all obtain the goal of making home ownership a reality.”
Bombay Mortgage is an equal housing lender, providing financing in the state of Florida.
Co #1725430, NMLS#1137821
Photo credit: istock.com