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So you’re ready to buy a home and have applied for a home loan. Now you can plan your move… how you will decorate your living room… that lovely antique piece of furniture you’ve been dreaming of buying… right? WRONG! You should be careful of making any big purchases. Here are seven things you may not realize you need to avoid after applying for your home loan.
Don’t Deposit Large Sums of Cash.
When you’re waiting for mortgage loan approval, you should avoid making any sizable deposits. Lenders need to source your money, and cash isn’t always easy to trace. If you do deposit a notable amount of money, your lender will likely ask for an explanation and proof of its origin which can slow down the home loan process or even lead to denial if you aren’t able to properly disclose information about the deposit. Before you deposit any amount of cash into your accounts, like a gift for instance, discuss the proper way to document your transactions with your loan officer at the start of your mortgage application.
Don’t Make Any Large Purchases.
It’s not just home-related purchases that could disqualify you from your loan. Any large purchases can be red flags for lenders. A large cash purchase will take away from your savings which you’ll need for a down payment and closing costs, and a large credit purchase will increase your debt-to-income ratio and credit utilization which are used to qualify—or disqualify—you for a loan. Since higher ratios make for riskier loans, borrowers may no longer qualify for their mortgage. Resist the temptation to make any large purchases, even for furniture or appliances.
Don’t Co-sign Loans for Anyone.
When you co-sign for a loan, you’re making yourself accountable for that loan’s success and repayment. With that obligation comes higher debt-to-income ratios 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.
Don’t Switch Bank Accounts.
Lenders need to source and track your assets. That task is much easier when there’s consistency among your accounts. Before you transfer any money, speak with your loan officer.
Don’t Open or Close Any Accounts.
Many buyers believe having less available credit makes them less risky and more likely to be approved. This isn’t true. 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. Opening or closing accounts has a negative impact on both of those aspects of your score which, in turn, negatively impacts your chances of getting approved. You want your credit to remain as stable as possible when applying for a mortgage, especially if you’ve already been pre-qualified. Pre-qualification doesn’t guarantee approval, and if your credit score changes, there’s a chance you may not be approved.
Avoid Missing Credit Card, Bill, or Loan Payments.
Payment history plays a huge role in determining your credit score which is an important part of determining your eligibility for a loan. It is essential that you pay your bills and other financial obligations on time. Just one late payment can negatively impact your credit score. You should pay especially close attention to your spending during the home loan process to ensure you aren’t spending more than you’re able to pay off in a timely manner.
Avoid Starting a New Job.
Situations where you are suddenly out of work can be unexpected and out of your control. But if you’re employed and considering changing fields, looking for another job, or becoming self-employed, it’s best that you wait until your mortgage has closed before making a move. Lenders look at your employment history to ensure you’ve had steady employment and income. Unemployment may result in disapproval, particularly when you’re applying on your own rather than jointly, and a change in jobs can require you to provide additional documentation which can slow the home loan process down.
In short, it’s best to fully disclose and discuss your intentions with your loan officer before you do anything financial in nature and be upfront about any changes when talking with your lender.