One of the initial steps in buying a home is getting approved for a home loan. While this can be exciting, it’s crucial to remember that even after approval, there are mistakes that can jeopardize your loan. Avoid these common pitfalls after your approval and throughout the entire transaction until you have closed on your new home.
Don’t Deposit Large Sums of Cash
Lenders need to verify the source of your funds, and cash isn’t easily traceable. Before depositing any cash into your accounts, consult your loan officer about the proper way to document your transactions.
Don’t Make Any Large Purchases
It’s not just home-related purchases that could jeopardize your loan approval; any large purchases can raise red flags for lenders. New debt increases your debt-to-income ratio (the amount of debt you have compared to your monthly income). Higher ratios make loans riskier, potentially disqualifying you from your mortgage. Resist the temptation to make any large purchases, even for furniture or appliances.
Don’t Cosign Loans for Anyone
When you cosign a loan, you become accountable for its repayment. This obligation increases your debt-to-income ratio. Even if you don’t make the payments, your lender will still count them against you.
Don’t Switch Bank Accounts
Lenders need to source and track your assets, which is easier when there is consistency among your accounts. Before transferring any money, consult your loan officer.
Don’t Apply for New Credit
Whether it’s a new credit card or a new car, having your credit report run by multiple financial institutions (for a mortgage, credit card, auto loan, etc.) can impact your FICO® score. Lower credit scores can affect your interest rate and potentially your eligibility for loan approval.
Don’t Close Any Accounts
Many buyers think that having less available credit makes them less risky and more likely to be approved, but this isn’t true. A major component of your credit score is the length and depth of your credit history (not just your payment history) and your credit utilization as a percentage of available credit. Closing accounts negatively impacts both of these factors.
Don’t Change Employment
There are some exceptions to this, but as a general rule, do not make any changes in your employment without first discussing it with your lender.
Do Discuss Changes with Your Lender
When speaking with your lender, be upfront about any changes that have occurred or that you expect. Changes in income, assets, or credit should be reviewed to ensure your home loan remains on track. If your job or employment status has changed recently, inform your lender. It’s essential to fully disclose and discuss your intentions with your loan officer before making any financial decisions. Your loan officer will know the best ways to help you navigate the entire process and are a great resource.
When purchasing a home, you want it to go as smoothly as possible. By following these guidelines, and always being upfront with your lender, you can ensure a successful purchase. For other important things to know about purchasing a home, check out 7 Common Home Buying Myths.