What Not to Do During Mortgage Approval
Once you’ve found your dream home and applied for a mortgage, there are some key things to keep in mind before you close. It’s exciting to start thinking about moving in and decorating your new place, but before you make any large purchases, move your money around, or make any major life changes, be sure to consult your lender – someone who’s qualified to explain how your financial decisions may impact your home loan.
Here’s a list of things you shouldn’t do after applying for a mortgage. They’re all important to know – or simply just good reminders – for the process.
1. Don’t Deposit Cash into Your Bank Accounts Before Speaking with Your Bank or Lender.
Lenders need to source your money, and cash isn’t easily traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer. If a loan officer sees large deposits, typically over $1,000, she must be able to trace their origin. Transfers between accounts and payroll deposits are generally fine, but anything that isn’t clear must have an explanation.
2. Don’t Make Any Large Purchases Like a New Car or Furniture for Your Home.
It can be tempting to start buying furniture, appliances, and other pricey household items to prepare for homeownership. But paying cash will dent your savings and charging substantial purchases will increase your debt-to-income ratio and credit utilization, or the percentage of available credit in use. Experts recommend keeping credit utilization under 30% to maintain a good credit score.
3. Don’t Co-Sign Other Loans for Anyone.
When you co-sign, you’re obligated. With that obligation comes higher debt-to-income ratios as well. Even if you promise you won’t be the one making the payments, your lender will have to count the payments against you.
4. Don’t Change Bank Accounts.
Remember, lenders need to source and track your assets. That task is much easier when there’s consistency among your accounts. Before you transfer any money, speak with your loan officer.
5. Don’t Apply for New Credit.
It doesn’t matter whether it’s a new credit card or a new car. Your credit can be pulled at any time up to the closing of the loan. Any negative changes could alter the terms of the deal or perhaps torpedo it altogether. Applying for other credit lines and loans can impact your credit score, and accumulating more debt will increase your debt-to-income ratio, a key factor lenders consider when you apply for a mortgage. Lower credit scores can determine your interest rate and possibly even your eligibility for approval.
6. Don’t Close Any Credit Accounts.
Many buyers believe having less available credit makes them less risky and more likely to be approved. This isn’t true. 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 of those determinants of your score.
Bottom Line
New loans, big purchases, job changes or large, unexplained bank deposits could jeopardize or delay final mortgage approval. A preapproval offer from a lender is based on an evaluation of your credit, income, debt and assets. If those things significantly change before final approval, the offer might not stand. Lower credit scores can determine your interest rate and possibly even your eligibility for approval. Any blip in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved.
Not sure? Ask. The best plan is to fully disclose and discuss your intentions with your loan officer before you do anything financial in nature.
Please contact me if you have any mortgage-related questions or concerns. I will be happy to pair you with local trusted loan officers in the greater Wichita area.
Kimmy Ostrom, Realtor
Keller Williams Hometown Partners, LLC
(316) 665-6477
