Even though it’s exciting to begin planning your move and decorating once you’ve applied for a mortgage, there are some important considerations to make before closing. Following your loan application, there are a few things you should probably avoid.
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Avoid making large cash deposits.
Cash is hard to track down, and lenders need to know where you got your money. Talk with your loan officer about how to properly record your transactions before you deposit any money into your accounts.
Avoid Making Any Major Purchases
You could lose your loan if you make purchases that are not strictly related to your home. Lenders may raise concerns about any sizable purchases. Debt-to-income ratios are higher for those with new debt (how much debt you have compared to your monthly income). Because riskier loans have higher ratios, borrowers might no longer be eligible for their mortgage. Avoid the urge to make any significant purchases, including those for appliances or furniture.
Don’t Cosign for Anyone’s Loans
You assume responsibility for the loan’s success and repayment when you cosign for it. Higher debt-to-income ratios result from that obligation. Your lender will have to count the payments against you even if you promise that you won’t be the one making them.
Avoid changing bank accounts.
Lenders must locate and keep track of your assets. When all of your accounts are consistent, that task is much simpler. Speak with your loan officer prior to making any financial transfers.
Avoid requesting new credit.
Having your credit report checked by businesses in multiple financial channels (mortgage, credit card, auto, etc.) will affect your FICO® score, regardless of whether you’re applying for a new credit card or a new car. Lower credit scores can affect your interest rate and perhaps even your approval eligibility.
Don’t Close Any Accounts
Many buyers think they are less risky and more likely to be approved if they have less available credit. That is untrue. Your total credit usage as a percentage of available credit and the length and depth of your credit history (as opposed to just your payment history) both play a significant role in determining your credit score. Both of those aspects of your score are lowered by account closures.
Do communicate any changes to your lender.
When speaking with your lender, be up front about any changes that take place or that you anticipate taking place. Any changes to your income, assets, or credit should be carefully considered and handled so that your home loan can still be approved. Inform your lender as well if your employment situation has changed recently. In the end, it’s always best to be completely honest and open with your loan officer before making any financial decisions.
To sum up
You want everything to go as smoothly as possible when you buy a house. Remember to speak with your lender—someone qualified to explain how your financial decisions may affect your home loan—before you make any significant purchases, money transfers, or other life changes.
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