What to Avoid During Mortgage Approval
New loans, substantial purchases, employment changes, or huge, unaccounted-for bank deposits may risk or postpone final mortgage approval.
Once you've been preapproved for a mortgage, you're well on your way to financing a home. But there are still miles to go until the finish line, and the journey might be bumpy if you're not careful.
A lender's preapproval offer is based on a review of your credit, income, debt, and assets. If those conditions change considerably before final approval, the offer may be withdrawn.
Here are some things you should not do before the loan closes:
1. Don't change jobs.
When applying for a mortgage or any type of loan, you will almost certainly be asked what your career or employer is and how long you've been with the company. Lenders ask this because they want to know how stable your finances are.
This does not mean that you will be evaluated entirely on your term of employment when applying for a mortgage; mortgage lenders will also consider your age, income, and credit history.
They may also consider your profession: if you work in a more stable or in demand field, such as medicine or law, this may have an impact on your application.
2. Don’t apply for a new credit
Your credit can be pulled at any moment up until the loan is closed. Any unfavorable adjustments could alter the parameters of the agreement or even derail it entirely. Applying for additional credit lines and loans can have an influence on your credit score, and increasing your debt can increase your debt-to-income ratio, which is a key element lenders assess when you apply for a mortgage.
3. Don't forget about credit card and loan payments.
Continue to pay your bills on time. Payment history is one of the most important aspects in your credit score, and credit account late payments of 30 days or more can be detrimental.
4. Avoid making huge purchases.
To prepare for homeownership, it can be tempting to begin purchasing furniture, appliances, and other costly household things.
However, buying cash depletes your savings, and charging large purchases raises your debt-to-income ratio and credit usage, or the percentage of available credit that is used. To preserve a healthy credit score, experts recommend maintaining credit utilization around 30%.
Avoid major purchases until after you have closed on your mortgage.
5. Make no large bank deposits (Other Than Your Paycheck)
Even if you use gift funds, mortgage lenders must document where your cash come from for earnest money deposits and down payments. Maintain a clean paper trail that shows how much money is flowing in and out of your bank accounts, as well as where it is coming from.
Avoid making substantial unaccounted-for cash deposits (or electronic transfers) into your personal banking account. If you're self-employed, it's also a good idea to separate your personal and corporate finances.
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