Congratulations! You've been pre-approved for a mortgage loan on your dream home. You made it past many hurdles, but be careful – you haven't completed the race just yet.
The wrong actions after your pre-approval process can cause the lender to re-think the amount of risk that you present and lead them to back out of the deal. Avoid these seven mistakes that could scuttle your mortgage loan and cost you the home of your dreams.
1. Opening New Credit Accounts – Opening new credit accounts, whether or not you utilize them immediately, should raise a red flag. Your credit score is likely to change, and the lender may review your risk of non-payment assuming that you have decided to take on extra debt. If you plan to open more accounts during this time, be prepared to explain to your lender how you plan to handle these accounts.
2. Making Large Purchases – It may be tempting to make large purchases for your new home, like a new set of furniture, but wait until after you close on the home. The increased debt will raise your debt-to-income (DTI) ratio – and a low DTI is one of the major factors in qualifying for a loan.
Why not just pay in cash? That won't help, either, because it reduces your cash reserves from the evaluation made during the pre-approval process. With fewer cash resources, the lender may question your ability to handle your remaining payments.
3. Paying Off All Debt – By the same logic, consuming your available cash to pay down credit depletes your reserves. Even if you have sufficient cash on hand to pay off your debt, you are changing the criteria used to evaluate your creditworthiness. It's best to discuss such a move with your lender first to get their reaction.
4. Making Unexplained Deposits – It's okay if you receive a nice bonus or cash in some certificates of deposit to bolster your bank account, but make sure that you properly document the income source. Lenders must make sure that you aren't relying on undocumented gifts to be able to meet your financial obligations. Make sure that any legitimate gifts that you receive are also documented properly with a gift letter from your donor.
5. Missing Bill Payments – It's never a good idea to miss bill payments because of the effects on your credit score, but it's extremely bad timing to miss payments between mortgage loan pre-approval and closing. The lender will wonder if you have overextended yourself and misrepresented your ability to handle a regular mortgage payment.
6. Changing Jobs – You can't control losing your job, but you certainly don't want to change jobs voluntarily before closing. Lenders want to know that you have a stable income, and a job change can put that in question. Even a change to a job with a higher income will require verification by the employer and probably at least one pay stub to verify the income level. Your settlement will be delayed as a result.
7. Missing Lender Requests – Your lender may need verifying documents at certain points in the loan approval process. Make sure that you understand which documents are likely to be needed; have them at hand so you can quickly respond to any lender requests, and respond to those requests promptly.
You're very close to your home ownership goal, and you can close the deal by paying attention to detail and avoiding mistakes. Think before you act during this critical time, and don't let sloppiness and poor judgment keep you from those all-important front door keys.
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