Buying a home involves many important steps, though few will matter if you can’t get financing. A loan officer will closely evaluate how large of a mortgage you can afford, and that amount that can change up to the day the mortgage note is signed. Because the loan process involves examining factors such as your credit, income, debt and assets, you want to avoid or postpone several common activities that could change these figures while your home loan is being processed.
Don’t apply for new credit
Your credit can and will be pulled at any time up to the closing of the loan, with any negative changes potentially altering the terms of the deal or perhaps torpedoing it altogether.
“We used to run credit 60 to 90 days ahead of a loan’s closing, and that was fine… that was the only thing to look at,” says Anders Nilsson, senior mortgage consultant at Mortgage Master in Danvers, Mass. “Now within 10 days of closing on the loan, we have to pull a credit update. That will show if there are any new accounts or a significant change in payment. If there are, of course people can go from qualifying to not qualifying.”
Don’t make any large credit purchases
After all of the required loan paperwork has been submitted for approval, it’s wise to limit any abnormal financial activity that might be a red flag for the loan officer.
But some first-time homebuyers spend tens of thousands of dollars on furniture, kitchenware and other household amenities — before the loan is approved, Nilsson says. These types of substantial purchases can spike a buyer’s debt-to-income ratio, their credit utilization or both at the same time. Again, both of these figures are scrutinized by a loan officer during the loan-approval process, many times up until the day of close.
Nilsson notes, “There are tons and tons of stories where people are in the process of buying a house, waiting for a loan … and then they buy the furniture, and they don’t qualify for the mortgage, and they just don’t get the house. It’s a classic.”
As a general rule, make these purchases after you close on the mortgage.
Don’t switch jobs
This might be out of your control, but it’s wise not to actively switch jobs during the loan-approval process. Employment verification is standard protocol for a loan officer, and a career change could mean adjustments in income and therefore revisions to the approved amount, or even outright denial.
Don’t make large deposits without creating a paper trail
To a loan underwriter, large deposits may indicate newly borrowed money and a higher debt-to-income ratio. For some consumers, this might mean they are less likely to be able to take on more debt.
Colin, a 29-year-old network engineer from Pennsylvania, almost lost a mortgage through this process. “My father gave us a gift contribution, and [the bank] insisted on verification from all angles: my bank statement, his bank statement, the canceled check, a letter from him. Everything had to be sourced from every possible angle.”
If a loan officer sees large deposits (typically over $1,000), she must be able to trace their origin. Transfers between accounts and payroll deposits are generally fine, but anything that isn’t clear must have an explanation. “As soon as you’re ready to start shopping,” says Colin, “minimize transfers between your accounts. Close superfluous accounts. Then call your bank and ask all your remaining ones to be set to the same statement date. It will make tracking things a lot easier when all your account statements are aligned on the calendar.”
If you’re not sure, ask
It’s important to understand that any major changes in personal income, assets or debt can alter the terms your mortgage, or tank it altogether. If you’re not sure how an action may affect your application, ask your loan officer for advice.
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