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You’re well on the way to financing a home once you’re preapproved for a mortgage. But miles remain before the finish line, and the ride can get bumpy if you’re not careful.
A preapproval offer from a lender is based on an evaluation of your credit, income, debt and assets. If those things significantly change before final approval, the offer might not stand.
Congratulations! You’ve found your dream home and submitted your mortgage application. Now comes the waiting game but it’s crucial to remember that your actions during this period can significantly impact your chances of approval. To ensure a smooth sailing process here’s a detailed guide on what to avoid after applying for a mortgage:
1. Don’t Touch Your Income:
- Maintain Steady Employment: Avoid switching jobs or changing your income structure, especially if you’re self-employed or receive commission-based pay. Lenders need consistent proof of income to assess your ability to repay the loan.
- Resist the Urge for Side Hustles: While tempting, starting a side hustle during this period can complicate your financial picture and raise red flags for lenders. Stick to your current income sources for a smooth approval process.
2, Keep Your Bank Account Pristine:
- Avoid Large Cash Deposits: Lenders need to trace the source of your funds, and large cash deposits can be difficult to explain. Consult your loan officer before making any significant deposits to ensure proper documentation.
- Resist the Temptation to Switch Banks: Consistency is key. Lenders rely on a consistent bank account to track your assets. Talk to your loan officer before transferring funds to a new account to avoid any complications.
3, Curb Your Spending Spree:
- Hold Off on Major Purchases: Resist the urge to indulge in big-ticket items like furniture or a new car. These purchases increase your debt-to-income ratio, making you appear riskier to lenders. In some cases, qualified buyers with new debt may lose their eligibility for a home loan.
- Practice Frugality: Stick to your budget and avoid unnecessary expenses. Demonstrating financial discipline shows lenders you’re responsible and capable of managing your finances effectively.
4. Be Wary of Co-signing:
- Avoid Co-signing Loans: When you co-sign a loan, you become equally responsible for its repayment. This additional debt can impact your own loan application, even if you’re not directly paying on the loan.
- Focus on Your Own Finances: Prioritize your own financial stability during this crucial period. Avoid taking on additional financial commitments that could jeopardize your mortgage approval.
5. Maintain Your Credit Score:
- Avoid New Credit Applications: Applying for new credit cards or loans triggers credit checks, which can negatively impact your credit score. Your credit score plays a significant role in determining your interest rate and loan eligibility, so avoid jeopardizing it.
- Don’t Close Existing Accounts: Contrary to popular belief, closing credit accounts can hurt your credit score. A significant element of your credit report is the depth and length of your credit history. Closing accounts can negatively impact this aspect, leading to a lower score.
- Pay Your Bills on Time: This is a golden rule for maintaining a good credit score. Even one late payment can significantly decrease your score, potentially jeopardizing your mortgage approval.
6. Stay Informed and Prepared:
- Communicate with Your Loan Officer: Ask questions, clarify doubts, and keep your loan officer informed of any changes in your financial situation. Open communication ensures a smooth process and helps address any potential issues proactively.
- Gather Necessary Documentation: Be prepared to provide any additional documentation your lender may require, such as pay stubs, tax returns, or bank statements. This expedites the verification process and helps avoid delays.
7. Embrace Patience and Positivity:
- Relax and Stay Positive: The mortgage application process can be lengthy and stressful. Stay positive, trust the process, and focus on the exciting prospect of owning your dream home.
- Be Patient and Persistent: Don’t get discouraged if there are delays or setbacks. Stay patient, work closely with your loan officer, and address any issues promptly.
8. Seek Expert Guidance:
- Consult a Financial Advisor: A financial advisor can help you navigate the complexities of the mortgage process, provide personalized advice, and ensure you’re making informed financial decisions.
- Work with a Reputable Lender: Choose a reputable mortgage lender with a proven track record and a team of experienced professionals who can guide you through the process and address your individual needs.
Bonus Tip:
- Stay Informed About Market Trends: Keep yourself updated on current mortgage rates and market conditions. This knowledge empowers you to make informed decisions and negotiate the best possible terms for your loan.
Remember, securing a mortgage is a significant milestone. You can improve your chances of a seamless approval process and get closer to owning your ideal home by adhering to these recommendations.
Don’t switch jobs
Although it may be beyond your control, it’s advisable to avoid actively changing jobs while the loan is being approved. A career change could mean an income adjustment and revisions to the amount youre approved to borrow.
Don’t make any large purchases
It can be tempting to start buying furniture, appliances and other pricey household items to prepare for homeownership.
However, using cash will reduce your savings, and making large purchases will raise your credit utilization rate—the proportion of credit that is actually used—and debt-to-income ratio. Experts recommend keeping credit utilization under 30% to maintain a good credit score.
As a general rule, wait until after you close on the mortgage to consider big purchases.
What not to do after you apply for a mortgage – Mortgage mistakes to avoid.
FAQ
What negatively affects mortgage approval?
What disqualifies you from getting a mortgage?
What hurts your chances of getting a mortgage?
What should I avoid when applying for a mortgage?
Avoid opening new lines of credit, closing credit lines, co-signing on loans, or making major purchases with credit cards before or during the mortgage loan process. Whatever your finances, be sure to include all debts and liabilities on your mortgage application. Honesty is always the best policy!
What should I do after closing on a mortgage?
As a general rule, wait until after you close on the mortgage to consider big purchases. 4. Don’t switch jobs This might be out of your control, but it’s wise not to actively change jobs during the loan-approval process. A career change could mean an income adjustment and revisions to the amount you’re approved to borrow.
What should I do if I see something inaccurate on my mortgage?
If you see something inaccurate, contact the credit agency to resolve the issue. Avoid opening new lines of credit, closing credit lines, co-signing on loans, or making major purchases with credit cards before or during the mortgage loan process. Whatever your finances, be sure to include all debts and liabilities on your mortgage application.
How can I avoid mistakes when buying a home?
When it comes time to buy your first home, being well-read and educated about the lending and real estate process can help you avoid some of these mistakes. Consider relaying on real estate and financial professional to help guide you through what’s best for your situation.