Applying for a mortgage is a significant step toward homeownership, but the process doesn’t end once you submit your application. Many buyers don’t realize that certain financial moves can jeopardize their loan approval, even after pre-approval. To ensure a smooth closing, here are key things to avoid after you apply for a mortgage.
1. Don’t Make Large Purchases
It may be tempting to buy furniture, appliances, or even a new car for your future home, but major purchases can affect your debt-to-income (DTI) ratio. Lenders assess your financial stability based on your existing debts and income. A sudden increase in debt can alter your eligibility and potentially result in loan denial.
2. Don’t Open or Close Credit Accounts
Your credit score plays a crucial role in your mortgage approval, and any changes can impact your interest rate or loan terms. Opening new credit accounts, such as a store credit card or personal loan, can lead to hard inquiries on your credit report, temporarily lowering your score. Similarly, closing existing credit accounts can reduce your available credit and increase your credit utilization ratio, which may also negatively impact your score.
3. Don’t Change Jobs or Income Sources
Lenders verify your employment and income multiple times throughout the loan process. A job change, career shift, or reduction in income can raise concerns about your financial stability. If possible, maintain consistent employment until after closing to avoid any disruptions to your mortgage approval.
4. Don’t Make Large Deposits Without Documentation
Lenders closely monitor your bank statements for any unusual or large deposits. If you receive a significant amount of money—whether it’s a gift or a side income—it’s crucial to document where it came from. Unexplained deposits may be flagged as potential undisclosed debts, which could delay or impact your loan approval.
5. Don’t Miss or Delay Payments
Even one missed payment on a credit card, car loan, or other financial obligation can cause a drop in your credit score. Continue making all payments on time to maintain your creditworthiness throughout the mortgage process. Late payments can signal financial instability to lenders, which may result in loan denial or higher interest rates.
6. Don’t Co-Sign Loans for Others
Co-signing a loan means taking on financial responsibility for someone else’s debt. Even if you’re not making payments, the loan will appear on your credit report and affect your debt-to-income ratio. This added liability could impact your mortgage approval or loan terms.
7. Don’t Ignore Lender Requests for Documentation
Throughout the mortgage process, your lender may request additional documents, such as pay stubs, tax returns, or bank statements. Respond to these requests promptly to keep your loan on track and avoid unnecessary delays.
Bottom line:
The period between applying for a mortgage and closing on your home is crucial. Even minor financial changes can impact your ability to secure a loan, so it’s important to stay financially stable and communicate with your lender before making any major decisions.
By following these guidelines, you’ll help ensure a smooth approval process and move one step closer to homeownership. If you have any questions about securing a mortgage or preparing for homeownership, reach out for expert guidance today! We are here to help!
