Congratulations! You’ve received a pre-approval from your mortgage lender, and are out looking at homes! This is no time to mess things up. Experienced loan officers will always admonish borrowers to keep things the same as they are as of the time of the pre-approval, but every once in awhile a borrower will ignore the loan officer’s advice and make one or more of these critical mistakes as they move toward the closing. Keep in mind that a mortgage pre-approval has no value—and won’t bind the bank—if your financial picture changes between the issuance of the preapproval letter and the formal application is processed. So here are the six biggest mistakes to avoid once you have been pre-approved for a mortgage:
- Late payments. Be sure that you remain current on any monthly bills. If you have bills paid automatically paid out of your checking account or by credit card, by all means, continue to do so. Your pre-approval only relates to a snapshot of your financial situation, and you need to keep this the same or better as when the pre-approval snapshot was taken.
- Applying for new lines of credit. Mortgage lenders are required to do a later credit check before the loan closes. They typically do what’s called a “soft pull” of your credit, which tells them if any new lines of credit have been opened. Any new credit account could negatively impact your credit score. This could lead to a higher interest rate or even result in delaying your closing. People looking to furnish their new homes often will be looking to buy new furniture and to time the furniture delivery to coincide with their closing. The stores offer deals with no payments due for months or even years on the new furniture. While seemingly a good financing offer, opening up this new line of credit could jeopardize your mortgage loan.
- Making large purchases. Buying expensive furniture or appliances with credit could change your debt-to-income ratio, which could result in a delayed closing or denial of your loan if your ratios were tight to begin with. Even if you use your own cash to make big purchases, you'll end up having less cash on hand for reserve requirements, which could also negatively impact your loan. Best thing to do is keep things as they are once you are approved.
- Paying off and closing credit cards. Credit scores are impacted by a variety of things. One of them is paying off and closing credit cards. Although it seems counterintuitive, paying off and closing credit cards often negatively affects credit scores. Also, depleting funds in your bank account to pay off credit cards also means lower cash reserves.
- Co-signing loans for others. Especially when it’s a new loan, co-signing a loan for another means that the loan is a debt for the borrower and for the co-signer. It will go into the debt-to-income ratio mix. So think twice before helping your child or sibling buy a car, at least until after your purchase closes.
- Changing jobs. Even if it’s a higher-paying job, changing jobs after receiving a pre-approval could cause a delay in closing due to verification requirements. Your new salary must be proven, so two paystubs will be requested, and the new job verified before the loan will be cleared to close.
The bottom line is that it is very important that you stay in touch with your loan officer before undertaking any significant financial moves, since even seemingly beneficial changes could have a negative impact in the days and weeks leading up to your closing. For more information about real estate matters, contact us.