Purchasing a home can be an overwhelming task. Don’t complicate things by making these common mistakes while applying for a mortgage.
Make Big Purchases or Lifestyle Changes
Your lender wants to see that you have stable activity in your accounts and a large purchase (which would cause a decrease in your available funds) could derail your approval.
Accept Large Gifts
Again, lenders want to see a steady & regular income flow when they look at your financial situation and an abnormal deposit could raise a red flag. I know, I know, but Mom and Dad want to help you with your down payment. If you plan to utilize a large monetary gift, be upfront with your lender about it and be prepared for paperwork. Your donor will most likely have to write a gift letter to your lender including personal information about the donor, their relationship to you, the property’s address, the total amount of money gifted, the date of transaction and a statement saying the donor is expecting nothing in return. Phew… see what I mean? It’s a lot.
Change Your Credit, At All.
This means no opening or closing any of your credit lines. New credit is bad credit because it decreases your net worth by giving you more available debt. Closing credit cards that you’ve paid off long ago may seem like a good idea, but it’s a big no-no during the approval process because this gives you less available credit and therefore negatively effects your debt to income ratio. Instead of closing them, just pay off your credit cards monthly as you normally would. Wait six months after you’ve closed on your home, then, and only then, should you think about closing them.
Sometimes this is out of your hands, but if you can help it avoid a job swap during the approval process. Employment verification is an important piece of the loan approval puzzle and some underwriters require 6 months of pay stubs from the same employer. Again, focus on non-changing scenery during this time.
Get Behind on Bills.
Duh. I know. You’ve never had a late payment in your life; this is so insulting. Just be extra vigilant with deadlines & auto payments; especially when you’re changing addresses and such.
Buy a Car or Furniture.
But I’m buying a house; I need furniture. Wait until after you’ve closed to buy that furniture. Don’t pay cash. Don’t take a credit line through the furniture store. Practice patience.
Spend Your Savings.
You’ll need cash at closing for down payment and closing costs. Your lender will have already verified that you’ve got those funds available but they’ll most definitely do another last minute check right before closing so make sure those funds stay in place.
Two Rules To Live By When You’re Applying For A Mortgage.
- When In Doubt, ask your lender first.
- Stability, Stability, Stability. Don’t do anything out of the ordinary.