Finally, after months of browsing at homes online and attending open houses and showings, you found the perfect home to buy. Congratulations! You’ve applied for a mortgage and now you can’t wait to settle and decorate. However, until you’ve closed on the house and have the keys in hand, you must stay vigilant with your finances and avoid making any big-time life changes.
During this period, always consult with your loan officer before making any significant changes that could affect your credit and change your original qualifications because the last thing you’d want is to jeopardize your chance of getting your dream home. To save yourself a big headache, we’ve listed a couple of things you must avoid doing to ensure that your home loan application runs as smoothly as possible.
When applying for a mortgage, the first thing you need to remember is to steer clear from buying a car, any expensive appliances or furniture, jewelry, and other luxurious items, on credit. No matter how exciting it is to buy new items and decorations for your future home, remember that all of these purchases will add up. Any new debt will include new monthly obligations, which can result in higher debt-to-income (DTI) ratios that make for riskier loans. So even if you were previously qualified, you will no longer be due to the ratio difference.
One of the most significant factors lenders look into when borrowers apply for a mortgage is their work history. Lenders will verify the jobs you’ve had, but they will look closely in your last two years of employment. They want to make sure that you have a good source of income and that you can repay your loan.
Lenders will have to track any changes to your annual income so if possible, refrain from changing jobs or changing how you are paid at your job, especially if you’re on salary-based income by the time of your application. You’ll want to avoid becoming self-employed during this time as well. If you must move to a different job as part of your long-time career plan, make sure that it’s within the same industry and that you can justify your move.
Refrain from applying for new credit, even if it’s a new credit card. When you have your credit run by several different financial channels, including mortgage, auto, or credit cards, your credit score will be affected. Lower credit scores can impact the interest rate for which you were originally approved, and could even affect your eligibility for approval.
Also, do not close any credit accounts during your home loan process. Remember that a significant part of your credit score comes from your credit history, where lenders can assess if you have been making payments on time over a long period.
If you think having a huge amount of money in your bank accounts will help you better qualify for a home loan, that’s not how it works. It can actually ruin your chances of being approved for a mortgage. Cash is hard to trace, and your lender needs to source your money. If you made an unexplained deposit, lenders might think that you took out a loan or a cash advance just to add money to your account.
You must discuss with your loan officer the proper way to document your transactions. If you are expecting a large sum of money or keeping a significant amount of cash on hand for emergencies, be prepared to show strong proof of where the money comes from. Also, save yourself from trouble by always keeping copies of deposits so you’ll have proof when you need it.
Co-signing means you are agreeing to pay off someone’s debts when that person fails to make payments for any reason. And while it is a generous act, especially if it can help a family member or a friend, remember that you are still obligated. And if you’re in the process of getting a mortgage, co-signing a loan is a big NO even if you swear that you’ll not be the one making payments. Co-signing is automatically a red flag on the eyes of a lender.
The worst-case scenario is when the borrower fails to pay the loan and your lender will have to count the payment against you. You’ll then be forced to pay that loan together with your mortgage. It’s a huge financial risk that no lender is willing to take.