Crashing credit, buying boats, co-signing for Cousin Eddie... Few mistakes are more cringe-worthy to a lender than when a client, well on their way to getting a mortgage, makes an impulsive decision that derails their loan approval. Here are ten “don’ts” for you to remember as you wait on those beautiful words: “clear to close.”
The Ten Top “Don’ts”
1. Don’t change or quit jobs or become self-employed. Lenders require steady employment and income consistency. Change jobs after you change mailing addresses.
2. Don’t buy a car (or boat, or RV, or four-wheeler…). Unless you want to be living in it, don’t purchase a vehicle while buying a home.
3. Don’t purchase any big-ticket items. Similar to vehicles, wait until after you own the home to buy that furniture or fancy sound system.
4. Don’t use credit cards or be late on any payments. This double-whammy hurts you both with the creditor and your mortgage lender. Limit your credit card use, and don’t let any accounts fall behind.
5. Don’t apply for credit anywhere.
Any new credit card or other line of credit will mean an inquiry, which will impact your credit score. Lenders will check your credit a second time right before closing, and new inquiries will result in delays.
A credit inquiry is a credit check, and this can be hard or soft. Hard inquiries are made with your permission for items like a credit card, mortgage, or car loan. Soft inquiries won’t show up on reports requested to evaluate your credit-worthiness.
6. Don’t “forget” debts on your loan application. If you owe back taxes, have liens, or other liabilities they will eventually be discovered. Be truthful on your application.
7. Don’t spend your savings. Don’t jeopardize your ability to make a down payment or pay closing costs by spending that money you’ve put aside.
8. Don’t make large deposits into your accounts. A sudden cash infusion into your bank account will raise a red flag and require explanation. If you are receiving gift funds, talk to your mortgage banker about what is required to document that money.
9. Don’t open, close, or change bank accounts. Perhaps you are moving to a different state and want to open an account with a local credit union. Wait until after your loan is closed. New bank account activity will require a paper trail and slow your loan process.
10. Don’t co-sign a loan for anyone. This is a good rule-of-thumb whether you are applying for a mortgage loan or not. When you co-sign a loan, it can lower your credit score and raise your debt-to-income ratio (DTI), which lenders look at closely. Also, if the borrower defaults, you will be on the hook to pay it off—not a good place to be if you have a new mortgage too.
Don’t Forget These “Do’s”
Finally, there are a few actions you can “do” to help expedite your loan’s progress. Help us help you!