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Finding a new home to purchase is an exciting time for most people. However, once you have applied for a mortgage, there are a few things you need to keep in mind, at least until closing. Ultimately you want the entire process to run smoothly and be as stress-free as possible; thus, you need to consider certain financial precautions.
Whether you have just been pre-approved or are only a few days away from closing on your brand new home, you still need to be careful with your finances. Yes, being pre-approved is a big step in the process and securing the funds for your dream home is no small feat. But the reality is that lenders keep a watchful eye on your credit score and finances all the way up to closing. As a result, there are several things you should avoid doing after applying for a mortgage.
Making any cash deposits is frowned upon when you are applying for a mortgage because lenders need to be able to verify your income and assets. Cash deposits affect your ability to buy a home because the lender cannot verify the source of the funds, whether it was obtained legally, or if someone loaned you the money. Even if the source of your cash deposit is legal and additional income for services rendered, you will still need to prove where the money came from if you plan on using it towards your down payment.
Due to fraudulent mortgage activity in the past, lenders pay even more attention to the source of a borrower’s income and assets. Fraudulent mortgage activity typically includes borrowing money from the seller to make a down payment, misrepresenting or faking employment status, or using borrowed money to inflate your income. Moreover, fraud is not the only thing that lenders are looking for. Any suspected illegal activity that lenders notice, they are required by law to report.
Cash deposits also affect your mortgage eligibility because Lenders need to be able to calculate, accurately, your debt-to-income (DTI) ratio. As you may be aware, if your DTI ratio exceeds a certain percentage (more than 50 percent), then you may no longer qualify for funding.
For instance, if you take out a personal loan and funds are deposited into your bank account, then you will likely have a problem as personal loans are considered debt and, therefore, will negatively impact your DTI ratio. Thus, the best plan is to fully disclose and discuss your intentions with your loan officer before you do anything financial in nature.
Along those same lines, it is crucial that you avoid making significant purchases. New cars and expensive furniture can easily ding your credit score. Thus, it is best to either hold off on these kinds of purchases. Alternatively, if you have the cash on hand, then you should opt to pay cash for larger purchases, at least until after you close on your home. That said, if you do not have access to large sums of cash at the moment, then in order to keep your credit and finances stable, you should wait.
Co-signing on other people’s loans is also a surefire way to put your credit at risk and limit how much you can borrow for your home. Of course, typically, when homebuyers co-sign for other loans, it is for family members. However, if you have not officially closed on the home, then this is something you need to avoid doing at all costs.
Even though it is not your debt, it still affects your credit and leaves you possibly responsible for any monies unpaid in the future. Therefore, if you cannot say no to a loved one, you should consider the available alternatives to co-signing.
Sticking it out with your current bank accounts is a must when applying for home financing. Think back to your pre-approval, when you were asked to produce two months’ worth of bank statements, this was so your lender could verify that your assets came from the source you indicated on your application.
Plus, two months’ of bank statements also demonstrate that your assets have been in your bank account for a certain amount of time. Nevertheless, if you change accounts, you will have to go through the process all over again, which likely means waiting at least 60 days and providing a letter of explanation. What’s more, your mortgage underwriter could require a new set of bank statements right before closing.
Applying for a new card can easily impact your credit score and, as a result, can jeopardize your chances of getting a mortgage. Moreover, even if a new line of credit does not bar you from a mortgage per se, it will still likely affect how much you can borrow.
Plus, here, your credit score will be impacted, but if you have a decent score, to begin with, then a new credit card will likely not ruin your chances as everyone’s overall financial situation is different. That said, if you can avoid applying for new lines of credit, then you should absolutely do so, especially if you have a less than stellar credit score at the time of application.
In fact, it is highly recommended that you make a few mortgage payments before you start considering adding more debt to the mix.
Likewise, it is not the best idea to close any credit accounts before closing because it will likely affect your credit history as well as lower your credit score. Thus, if you are applying or planning to apply for a mortgage in the near future, keep your credit accounts open. You can, however, pay off credit cards or account balances prior to closing.
Ultimately, lenders can pull your credit up until closing, so it is important for you to stay on top of your finances by not making any significant changes to your credit, your bank accounts, and so on. If you have questions regarding what you can and cannot do financially, in the meantime, make sure you speak with your loan officer before making an irreversible decision.
At Sammamish Mortgage, we strive for a personalized experience for each mortgage applicant. That’s why we employ a full staff of experienced mortgage loan officers, transaction coordinators, processors, and funders.
Mortgage loan processing is all we do, so every member of our team is highly experienced. If your personal loan officer is out for the day, or it’s the weekend, and you need to talk to someone about your loan, someone will be available to you.
Sammamish Mortgage has been in business since 1992 and has assisted many homebuyers in the Pacific Northwest. If you are looking for mortgage financing in Washington State, we can help. Sammamish Mortgage offers mortgage programs in Colorado, Idaho, Oregon, and Washington.
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