April 15th, 2014 10:53 AM by Jackie A. Graves, President
Being preapproved for a
mortgage and actually getting one can be two very different things.
From the time you start
the loan application process all the way to closing day, every financial move
you make could affect whether that loan is approved or denied. Guarantees are hard
to come by in the mortgage industry.
Let’s take a look five
financial mistakes to avoid making before you close on a home loan.
Moving Money Around
Lenders are going to
take a long, hard look into your finances, from tax returns and pay stubs to
bank statements and sometimes more.
You’ll need to explain
any questionable deposits to or withdrawals from your account. Moving money
around can cause concern for lenders. They’re looking for regular, verifiable
transactions that come with a paper trail.
By all means, you can
often use gift funds for a down payment or other mortgage costs. But you’ll need clear and consistent
documentation. You can’t just dump a bunch of cash in your account and expect
to sail through closing without questions.
Taking on New Debt
During A Loan Application
Buying a new home can be
an exciting time, especially as you start thinking about how to make it your
own. Don’t let that turn into a shopping spree.
Racking up new debt or
taking out additional credit will raise major red flags and could tank your
credit score. That, in turn, could kill your loan outright.
It’s typically best to
avoid making any major purchases or seeking new credit until after your loan
closes and funds. Notify your loan officer as soon as possible if you
absolutely have to charge something.
Co-Signing a Loan
Co-signing on a loan
isn’t a terribly sound financial move under the best of circumstances. It’s
definitely a bad idea if you’re currently under contract on a home.
Co-signing a loan for someone
makes you financially liable for their debt. Lenders will factor the new
responsibility into your overall affordability profile. That new debt could
stretch an already thin debt-to-income (DTI)
ratio beyond qualifying range.
Getting Behind on Bills
One 30-day late payment can cause
your credit score to slip anywhere from 60 to 110 points. Even if
you have sky-high credit, that kind of hit can seriously affect your ability to
land a loan.
If that 30-day late payment is
for a mortgage or rent, some lenders may toss your application altogether.
Others may be able to work with a single 30-day late payment in the last 12
months. Don’t take any chances – pay your bills on time.
You don’t always have control over
this last area. Needless to say, losing your job during the home loan process
is going to be a big problem.
Lenders want to see a track
record of stable, reliable income that’s likely to continue. Taking a new job
in the same field may not be a huge problem. It’ll still trigger a new layer of
scrutiny and further explanation.
But jumping into an entirely
different career field or starting your own business will likely force you to
put your homebuying dreams on hold.
Even something like shifting your
income to a commission basis or getting a promotion can impact your loan.
Regardless of the issue, constant
communication with your loan officer is key, especially if
things are in flux.
Let common sense and clear
communication rule the day. Those two can go a long way toward getting you to
closing. - Chris Birk