Congratulations! You have your loan pre-approval and are ready to embark on the search for your new home. You may feel a sense of relief but do not let down your guard or get sloppy in your financial habits. The race is not over until you make it across the finish line – closing on your new home.
The home buying process can be stressful even with a deal that has no hiccups. But, there are almost always some bumps along the way. Do not allow your actions to create a hiccup or even blow the deal. The items below are the ways, seemingly innocent actions, can jeopardize you closing on a new home, vacation rental or investment property.
Mortgage lenders like to see two years of job history as an indicator of financial stability. Starting a new job in another field or especially becoming self-employed may require you to wait and establish a track record all over again. Postpone any job changes until after closing to make sure you do not kill the deal.
While moving from one salaried position to another in the same field may not be as much of a red flag, it is best to not give the underwriter for the loan any reason to scrutinize your application. The lender could delay the approval until you have been in the new job and received income for at least 30 days.
Apply for Additional Credit
Mortgage lenders look at the amount of available credit not just outstanding balances you carry. So, don’t accept those new credit cards that are mailed to you. This includes “store” credit cards, not just major credit cards. Additionally, the number of credit inquiries on your credit report will adversely affect your credit score. Don’t give permission for anyone to check your credit or continue to shop mortgages.
Closing Credit Accounts
While intuitively closing un-needed credit accounts should be construed as a positive action, it can affect your credit score and may require additional scrutiny from the loan underwriters. Closing credit accounts can make your current debt a larger portion of your available credit, which impacts your credit score.
The same reasoning also applies to paying off existing car loans. You may think you are doing the right thing by reducing the amount of debt, but it may adversely affect your credit score and you may fall below the underwriting guidelines, especially if borderline before.
Purchase on Credit
Using your credit cards to make purchases that increase your debt will negatively impact your debt to income ratio the lender used to pre-approve your mortgage. You can still use your credit cards if you keep the total outstanding balance the same or lower than when you were pre-approved. Continue your typical spending habits. For example, if you use your cards each month for $500 in gas or other routine expenses, continue to pay off that balance each month to keep the total outstanding debt the same.
The same applies to purchases for furniture or appliances even when no payment is due for a year. It will still impact your overall debt.
Co-Sign on another Loan
Co-signing on another loan can increase your debt as you will become the responsible party should the first party default. The mortgage lender will not look favorably on your guarantee for another party and will include the amount as part of your debt obligations.
Buy a Car
It should be obvious from the items above that buying a car with credit before closing on a house is a bad idea. This also applies if you are leasing a car. Discuss with your lender if your current car lease will expire before the closing date for your home purchase.
If you use cash for a car or other large purchase, the lender will want to make sure you have enough in reserve for the down payment and a reserve for any unexpected expenses.
Missed or Late Payments
You must be flawless in paying ALL your bills on or before they are due. Continue to pay your rent and utilities on time and pay at least the minimum amount due on all credit cards before the due date.
While this may seem counter-intuitive, a sudden large cash gift may have the lender wondering if you live within your means or have otherwise acquired the down payment.
Expect the same scrutiny from the underwriter for any large deposits or transfers in your accounts. Refrain from changing banks or moving liquid assets around. It will make it harder for the lender to document your funds and raises suspicion.
If your parents want to give you a housewarming gift, make sure you don’t cash the check until after closing or be prepared to get a gift letter signed and other documents to satisfy the lender.
File an Amended Tax Return
The lender has reviewed your tax returns during the pre-approval process. If you amend the return before closing it can be a red-flag and impact your closing.
The same applies with staying current and filing your taxes on time.
Refrain from packing any financial documentation, checkbook, tax returns and the like until just after closing. This way you can easily retrieve any documents requested at the final stages of the mortgage process. Whatever you do, don’t throw out or destroy any documentation that may be required.
Overdraft to Accounts
Similar to paying your bills on time, paying attention to your accounts so there are no overdrafts is important while going through the mortgage approval process. Overdrafts can make it appear as though you are over extended and negatively affect your loan approval.
While no one would intentionally become disabled, a lender would be concerned about your ability to repay the loan. Avoid high risk hobbies, like skydiving.
Plans to start a family or adopt a child should be postponed during the mortgage application process. An addition to the family will likely increases expenses and could affect your ability to qualify.
Changes in marital status or name changes can also complicate the process and change the final closing documents and title.
Delay Shopping for Insurance
Once a purchase contract is signed and accepted, begin shopping for insurance. Many homes in the Outer Banks will require 3 policies; flood, homeowners and wind and hail coverage. You don’t want to wait until the last minute to find an insurance agent or adequate coverages at an affordable cost.
Fail to Communicate
If there is anything on this list that you must do, discuss it with your lender before proceeding. Being upfront and taking the lenders advice will eliminate any delays. Monitor your email and phone messages to stay on top of any lender requests for additional documentation. The sooner you comply with the request the more likely it will not impact your closing date. Keep the lender informed of any addendums, seller concession and other details of the purchase.
The bottom line is to maintain the status quo during the mortgage process. Stability in your employment, lifestyle and financial commitments is key to having the lender not having any doubts about your ability to repay the loan. The lender has a snapshot of your position at the pre-approval process and will re-check your credit immediately before closing. You want the picture to remain the same to proceed to a smooth closing. No one likes last minute surprises or delays so don’t take action that will prompt questions and require additional documentation.
From seasoned veteran to first time home buyer, Eillu is here to help you navigate the home buying process. With over two decades of experience in the Outer Banks market, we can help you with any questions and guide you every step of the way for a smooth buying experience. Our exclusive buyers rebate will save you money without sacrificing service. Schedule an appointment with Eillu today.