Purchasing a home can be an overwhelming task, and there are a lot of moving parts. It’s important to realize the professionals you’ve hired to help you through it cannot do their jobs if you’re not cooperative.
Don’t complicate things by making these common mistakes while applying for a mortgage.
Make big purchases or lifestyle changes
Your lender wants to see that you have stable activity in your accounts and a large purchase (which would cause a decrease in your available funds) could derail your approval.
This goes for buyers who are in pending contracts as well. Making a large purchase will dramatically change your debt to income ratio and could derail your financing all together. Always consult with your lender before making large purchases while you’re searching for or in the process of buying a home.
Accept large gifts
Lenders need to see a steady and regular income flow when they look at your financial situation, and an abnormal deposit could raise a red flag.
But what if Mom and Dad want to help you with your down payment?
If you plan to utilize a large monetary gift, be upfront with your lender about it and be prepared for paperwork. Your donor will most likely have to write a gift letter to your lender including personal information about the donor, their relationship to you, the property’s address, the total amount of money gifted, the date of transaction, and a statement saying the donor is expecting nothing in return. Phew... see what I mean? It’s a lot.
Change your credit
This means no opening or closing any of your credit lines. New credit is bad credit because it decreases your net worth by giving you more available debt. Closing credit cards that you’ve paid off long ago may seem like a good idea, but it’s a big no-no during the approval process because this gives you less available credit and therefore negatively affects your debt-to-income ratio.
Instead of closing them, pay off your credit cards monthly as you normally would. Wait six months after you’ve closed on your home; then, and only then, should you think about closing them.
Sometimes this is out of your hands, but avoid a job swap during the approval process if at all possible. At the very least, keep your lender in the loop. Employment verification is an important piece of the loan approval puzzle, and some underwriters require six months of pay stubs from the same employer. Again, focus on non-changing scenery during this time.
Stall on your lender's requests
A closing can be delayed due to buyers not getting required documents to their lender in a timely manner. Because most real estate transactions are tied to one or more others, a change in the closing date can sometimes be a complete deal breaker. Be on call for your lender and get them all required documentation quickly to avoid sinking your own real estate deal.
As you get closer to closing, pay extra close attention as your lender may receive a request from underwriting at the last minute. And they do not wait for anyone, so be on the ready!
Buy a car or furniture
“But I’m buying a house, I need furniture.” While it’s tempting to shop early, it’s best if you wait until after you’ve closed to buy that furniture. This will ensure you’ve got a living room to put that new couch in.
Paying cash for these items isn’t going to do you any favors either. And you definitely don’t want to take a credit line through the furniture store before closing. Practice patience, and if you must shop, ask the furniture store if they can pull the credit the day after closing.
Spend your savings
Chances are good you’ll need cash at closing for down payment and closing costs. Your lender will have already verified that you’ve got those funds available, but they’ll most definitely do another last minute check right before closing. Make sure those funds stay in place and you’ll sail smoothly through closing!
All in all, it’s important to remember two things when you’re in the process of financing a home purchase: when in doubt, ask your lender first, and focus on not rocking the bank account boat by avoiding moving monies in or out.