While it’s exciting to think about decorating and buying new furniture after going under contract on a new home, there are some key things to keep in mind to ensure your loan goes through. Avoid these things after applying for your home loan.
Don’t Deposit Large Sums of Cash
Lenders need to source your money, and cash isn’t easily traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your lender.
Don’t Make Any Large Purchases
It’s not just home-related purchases that could disqualify you from your loan. Any large purchases can be red flags for lenders. People with new debt have higher debt-to-income ratios (how much debt you have compared to your monthly income). Since higher ratios make for riskier loans, borrowers may no longer qualify for their mortgage. Resist the temptation to make any large purchases, even for furniture or appliances.
Don’t Cosign Loans for Anyone
When you cosign for a loan, you’re making yourself accountable for that loan’s success and repayment. With that obligation comes higher debt-to-income ratios as well. Even if you promise you won’t be the one making the payments, your lender will have to count the payments against you.
Don’t Switch Bank Accounts
Lenders need to source and track your assets. That task is much easier when there’s consistency among your accounts. Before you transfer any money, speak with your loan officer.
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.), it will have an impact on your credit score. Lower credit scores can determine your interest rate and possibly even your eligibility for approval.
Don’t Close Any Accounts
Many buyers believe having less available credit makes them less risky and more likely to be approved. This isn’t true. 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 aspects of your score.
Do Discuss Changes with Your Lender
Be upfront about any changes that occur or you’re expecting to occur when talking with your lender. Blips in income, assets or credit should be reviewed and executed in a way that ensures your loan can still be approved. If your job or employment status has changed recently, share that with your lender as well. Ultimately, it’s best to fully disclose and discuss your intentions with your lender before you do anything financial in nature.