Many home buyers often search for a home and then consult a lender to get pre-qualified. As real estate professionals, we often explain to our clients the importance of getting pre-approved, BEFORE you start the home buying hunt.
We do this because for a few reasons. First, we need to know exactly how much our buyers can afford. We want to make sure that you are comfortable with the monthly mortgage payment on which ever home you decide to purchase. Second, if we show you homes without knowing your approved price point, we may show you a home that you fall in love with that you just can’t afford. Finally, the market is very competitive. Once you find that perfect home chances are other buyers have too. Most agents require a pre-approval letter attached to your offer, especially if that listing agent has multiple offers.
So what happens after you’ve applied for that mortgage. There’s no doubt that you’re excited about the opportunity to decorate your new home, but before you make any large purchases, move your money around, or make any big-time life changes, we encourage you to consult your loan officer – someone who will be able to tell you how your decisions will impact your home loan.
Below is a list of Things You Shouldn’t Do After Applying for a Mortgage. Some may seem obvious, but some may not.
1. Don’t Change Jobs or the Way You Are Paid at Your Job. Your loan officer must be able to track the source and amount of your annual income. If at all possible, you’ll want to avoid changing from salary to commission or becoming self-employed during this time as well.
2. Don’t Deposit Cash into Your Bank Accounts. Lenders need to source your money, and cash is not really traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.
3. Don’t Make Any Large Purchases Like a New Car or Furniture for Your New Home. New debt comes with it, including new monthly obligations. People with new debt have higher debt to income ratios…higher ratios make for riskier loans…and sometimes qualified borrowers no longer qualify.
4. Don’t Co-Sign Other Loans for Anyone. When you co-sign, you are obligated and that obligation comes higher ratios. Even if you’re positive that you will not be the one making the payments, your lender will have to count the payments against you.
5. Don’t Change Bank Accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is consistency among your accounts. Before you even transfer any money, talk to your loan officer.
6. Don’t Apply for New Credit. It doesn’t matter whether it’s a new credit card or a new car. When you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO® score will be affected. Lower credit scores determine your interest rate and your eligibility for approval.
7. Don’t Close Any Credit Accounts. Many clients erroneously believe that by having less available credit they are a less-likely risk and more-likely to be approved. Wrong! A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those determinants in your score.
Any change in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. The best advice is to fully disclose and discuss your plans with your loan officer before you do anything financial in nature. They are there to guide you through the process.
When you are ready, we can meet to find you that perfect home you dream of – one that we know you can afford!
Renee Ledbetter, Realtor®