If you’ve been pre-approved for a mortgage, you’re probably assuming you can breathe easy and focus on finding the home of your dreams without needing to worry about the loan any further. Unfortunately, that’s not the way it works. There is a huge difference between being pre-approved for a mortgage and being approved for a loan. When a lender gives you a pre-approval letter it basically says the lender thinks you have a great chance at being approved for a loan, but it doesn’t guarantee it. Once you go under contract, you’ll need to fill out a lot more forms, go through underwriting where the underwriter will scrutinize every document and ask for additional supporting documents, have your credit report pulled again, etc. Only then will you find out if you are fully approved.
Between now and the time you close on a home, it’s important to keep your finances in the same condition (or better) than they were when you applied for your pre-approval letter. Unfortunately, buyers often do things that can potentially jeopardize being approved for a loan. So between now and when you close on a home here’s my DO NOT DO list for you:
- Don’t spend your savings – you need cash to pay your down payment and the closing costs on the day of closing. Your lender may verify your cash reserves more than once between now and closing, so make sure you don’t deplete your cash reserves. This means you can’t buy new appliances, furniture, expensive gifts, etc. until after closing. If you do, it could put your loan in jeopardy.
- Don’t change your jobs – if you can help it, that is. A job change could mean a raise but it could also delay your closing date. Your lender will verify your employment before your closing date and will generally require two pay stubs from your employer before getting the okay to close.
- Don’t skip or fall behind on payments – one of the most important elements of your credit score is your history of on-time, in-full payments. Lenders generally pull your credit one more time the day before closing so make sure you are caught up on all payments.
- Don’t move money around – your lender will ask you for your most recent bank statements during the underwriting process. If something unusual comes up such as an account with a $0 balance which previously had $20,000 in it, the lender will require a paper trail to see where that money went. Therefore, if you want to consolidate funds into different accounts it’s best to do so before you get pre-approved.
- Don’t close any lines of credit – closing credit accounts can significantly impact your credit score. You lose points when you have a higher usage of debt compared to your overall credit availability. If you do decide to close any lines of credit, wait until closing is complete. This warning might sound silly, but it is a common reason loans are denied.
- Don’t apply for new credit – like closing a line of credit, applying for a new credit card or loan will also impact your credit score. You lose a few points with every credit inquiry. If your lender sees that you’ve opened a new credit card, they may worry you’ll spend the maximum loan amount on that credit card.
- Don’t co-sign on a loan – this is an absolute no-no. When you co-sign on a loan it means you’re now financially liable for someone else’s debt. Lenders will factor that new monthly obligation into your overall affordability profile. Adding one debt to the list could stretch your debt-to-income ratio and assets too thin.
- Don’t fail to communicate quickly with your lender – be the first to inform your lender on any financial or employment changes during the transaction. Getting in front of any changes can help keep the transaction on track.
- Don’t leave town if you can help it – Be careful about putting expensive trips on credit cards before closing. Expensive airline tickets, hotel reservations, car rentals, etc on your credit card can change your credit card debt ratio. If you are leaving town, talk to your lender to be sure all signatures and information can be done online or before you leave.
- Don’t legally finalize relationship status – separation or divorce can wreak havoc on a loan. If it is possible to leave everything as is until the closing of your transaction, you will have a smoother loan process.If a divorce will finalize during the process be sure to be honest, realistic, and patient with your lender.
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