I recently received an email from a Lending a Hand reader requesting information on what to avoid throughout the mortgage process to ensure a smooth approval and closing. Instead of just responding directly, I thought many of the readers could benefit from this question, so I decided to write a post on the Mortgage Don’ts. Here they are…
Don’t buy or lease a new vehicle. Mortgage lenders look closely at the debt-to-income ratio, so any changes to your financial situation, especially a large monthly payment like a vehicle, will impact your ability to qualify. Many people get anxious to fill that new garage they just bought with a new car. Just wait until after closing if you really want a new car.
Don’t move your money around. Although it is not impossible to document assets when the funds are transferred from one account to another, it just complicates the process, unnecessarily. This includes the transfer of gift money. If you have a relative that is going to provide money as a gift for your home purchase, talk with your lender about the method they would like you to transfer the money. In some cases there is a very specific process that should be followed.
Don’t change jobs. Part of the verification process and approval process involves documenting your job history and stability. If you switch jobs, the income that can be documented may change due to the method in which a lender calculates your income. This is especially true if you change the industry you work in. It may seem obvious, but this happens all the time – Do not quit your job. Some believe that once you are “pre-approved” there is no need to worry about any changes since the approval process is done. The lender has the right, up to the day of closing, to verify all information that the approval was based on. This includes your employment, income, assets and credit.
Don’t buy new furniture or appliances. The reason for this don’t is similar to the don’t about buying or leasing a car. Any changes to your debt can have an impact on your ability to qualify. If you charge a furniture or appliance purchase on a credit card, the payment must be calculated into your debt ratio and could impact your ability to qualify. Even the “no interest, no payment” plans will impact your debt ratios, so wait until after you close. If you plan to pay for those items with cash, it may not impact your debt ratio but it can impact your assets and reserves (the amount of money remaining after the closing of the house). This, too, can impact your qualifications, so play it safe and wait.
Don’t make changes to your credit. Changes to your credit can sometimes negatively impact your score, when your intention was to increase your score. Check out my previous post on how to Quickly Increase Your Credit Score and read the Beware Tip #1. This example shows how good intentions can result in bad results. If you would like advice on what, if anything, you should do related to your credit report, check with your mortgage loan officer.
Don’t pack or ship any financial documents. Important documents like tax returns, W2’s, bank statements, pay check stubs, divorce decrees, DD214, should not be packed with other household items. Wait until after you close, as there are sometimes unforeseen circumstances that will require those documents. Duplicate copies can take weeks to obtain.
By following these don’ts you can eliminate a lot of unneeded stress throughout the mortgage processing. If you are reading this while in the midst of a loan approval and have done one of these don’ts, be sure to tell your lender so they can help in rectifying the situation before it becomes an emergency, possibly impacting your ability to purchase.
Lending a Hand,