You’ve gotten your purchase agreement successfully negotiated and your mortgage loan approval is in place so now you can start planning for moving into your new home – right? Well – yes and NO!
There are some key things to keep in mind before you close. A couple of wrong moves and you could possibly jeopardize your ability to close on the purchase of your new home! You’re undoubtedly excited about the opportunity to decorate your new place, but before you make any large purchases, move your money around, or make any major life changes, consult your lender – someone who is qualified to tell you how your financial decisions may impact your home loan and ability to close.
Below is a list of things you shouldn’t do after applying for a mortgage. They’re all important to know – or simply just good reminders – for the process.
1. Don’t Deposit Cash into Your Bank Accounts Before Speaking with Your Bank or Lender. Lenders need to source your money, and cash is not easily traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.
2. Don’t Make Any Large Purchases Like a New Car or Furniture for Your New Home. New debt comes with new monthly obligations. New obligations create new qualifications. People with new debt have higher debt-to-income ratios. Higher ratios make for riskier loans, and then sometimes qualified borrowers wind up with higher interest rates or worse; they may no longer qualify to purchase the home!
3. Don’t Co-Sign Other Loans for Anyone. When you co-sign, you’re obligated. With that obligation comes a higher debt ratio 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. Co-signing on your children’s college loans would be a good example of this.
4. Don’t Change Bank Accounts. Remember, lenders need to source and track your assets. That task is significantly easier when there’s consistency among your accounts. Before you transfer any money, speak with your loan officer.
5. 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 impacted. Again, lower credit scores can determine your interest rate and maybe even your eligibility for approval. That attractive new credit card with the zero percent introductory rate and bonus airline mileage can wait until AFTER closing!
6. Don’t Close Any Credit Accounts. Many buyers believe having less available credit makes them less risky 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 of your score.
How expensive could a change be? Let’s say your new home will have a $300,000 mortgage at 3.0% – a monthly loan payment of $1,264.81. Assume you did take one of these steps and your credit score dropped enough that your loan risk increased your interest rate to 3.25%. Your monthly loan payment will increase by $40.81 to $1,305.62 – and over 30 years (360 monthly payments) you will pay an extra $14,692 for that mistake! A bigger mistake could even shut down your ability to buy your dream home at all!
Any blip or change in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved and you can keep that low interest rate you locked. If your job or employment status has changed recently, share that with your lender as well. The best plan is to fully disclose and discuss your intentions with your loan officer before you do anything financial in nature. When in doubt – ASK!
Things to Avoid after Applying for a Mortgage
· There are a few key things to make sure you avoid after applying for a mortgage to help make sure you still qualify for your loan at the closing table.
· Along the way, be sure to discuss any changes in income, assets, or credit with your lender, so you don’t unintentionally jeopardize your application.
· The best plan is to fully disclose your intentions with your lender before you do anything financial in nature.