Yesterday I shared the Do’s for a Rock Solid Mortgage Approval but today I want to share what not to do. What not to do is just as, if not more, important than what to do. All of the items below can have a major impact on your ability to get approved or void your existing mortgage approval.
A quick Google search of what not to do mortgage yields pages and pages of results including:
- What Not to Do During Mortgage Approval
- The Worst Things You Can Do Before Buying a Home
- 6 things homebuyers should avoid doing once they are preapproved for a mortgage
So why create my own list of these already exist? Because sometimes the obvious goes unstated. Unfortunately, I have seen many buyers approved for a mortgage do what they think is ok to find out later the jeopardized their opportunity to buy the home they had their hearts set on. I do not want that to happen to you. Here are my 10 don’ts for a rock solid mortgage approval:
DON’T Change or Quit Your Job
You probably know this, right? Your employment is used as part of the mortgage qualifying process and therefore changing jobs would not be a good idea. But there is more to it than just changing or quitting job. Anything related to your income can impact your qualifying.
Let’s say you are employed as a customer service rep for a large company. You have worked there for years, putting in your dues, with the hope that some day you will be promoted to manager. That day has come! Your boss comes to you and informs you that you have done an amazing job and it is time for you to reap the benefits. You have been promoted to Manager. With this change comes a nice pay increase. Good, right?
Are you using a loan program that is income restricted? If so, increasing your income during the mortgage approval process could actually negatively impact your ability to qualify.
Let’s assume you are not on income restricted mortgage program. Your boss informs you that your base pay is going down but your bonus structure will increase your overall income by 50%. Nice…a 50% raise. Well, not so fast. See, bonus income can not be used for qualifying therefore in this situation, your base pay is being reduced with will reduce your qualifying income and could impact your mortgage approval.
DON’T Buy a Car, Furniture or Appliances
Are you moving from an apartment into a home with a garage? Exciting, I know! You have been waiting for this day, holding on to your junker just until you had a garage to store that beautiful new car in. Think I am kidding? This happens all the time!!
Making large purchase like a car, furniture or appliances will impact you in some way that will impact your qualifying. You are either getting a loan, credit card or depleting assets. All of these can have a negative impact on your mortgage approval.
Co-signing on a debt is basically the same thing as getting credit yourself, which I explained previously. Don’t do it. If you must, speak with your mortgage loan officer to see how it will impact your ability to qualify for your mortgage.
DON’T Use Credit Cards Excessively
Do you remember what I said yesterday? Be Predictable!!
Most mortgage lenders these days monitor your credit from the time you start the mortgage process all the way up until closing. They are monitoring your credit to meet rules and requirements in the mortgage industry to ensure you are still qualified on the day of closing, the same way you were when the underwriter first approved you.
If there is enough of a change in your balances gets reported on your credit your lender will be notified and is required to investigate and determine if it will impact your qualifying.
DON’T Let Accounts Fall Behind
Just like the previous don’t, your lender will be notified of any late payments or collections that get added on to your credit during the mortgage process. The last thing you want to do is be ready to close, just a day or two away and then have a late payment pop up on credit.
This is particularly true in a refinance transaction. When you refinance you should continue to make your monthly mortgage and HOA payments until your lender tells you to stop. You may think because your loan is being refinanced that you don’t have to make your next payment. That may or may not be true depending upon when the refinance closes, funds and then your previous mortgage is paid off.
DON’T Allow Others to Run Your Credit
Yep, we’re still monitoring your credit. Just like the last two, this is something the lender is looking for up until the day of closing. Have your balances increased too much? Have you had any negative items reported? AND have you applied for any new debt.
There is maybe one exception and that is homeowners insurance. Some homeowners insurance companies will need to run your credit in order to put a policy in place, which is required by your lender. So, that may be the one exception I can think of…but you will still likely need to explain this to your lender.
DON’T Spend Money Set Aside for Closing
You have money set aside for closing so why would you spend it? Good question, but it happens. Sometimes buyers get gifts from relatives to assist with down payment and closing costs. They are not used to having that much money sitting in their bank account and they start to feel more confident about their financial position. They don’t do it purposely but maybe they eat out a little more, splurge on a nice new pair of jeans or spend a little bit more at the grocery store than they normally would. Innocent purchases that can add up.
Be careful and watch your account to ensure you have enough for closing, your normal day to day expenses and some extra after you close.
DON’T Make Any Non-Payroll Deposits
Most deposits have to be sourced. In other words, we need to know where your money is coming from. This is due to mortgage rules and Federal banking requirements. Is your buddy finally going to repay their debt because they know you need the money for your home purchase? Great, but don’t deposit that into your checking account without first talking with your loan officer to see if it will impact your mortgage qualifying.
DON’T Move Money Around
Shuffling money around requires more work for you and the lender. Every movement of money from one account must be documented. Not only must we document the money transfer but we normally have to document all accounts where money has been transferred from or to with a full 30 to 60 day history. Avoid the extra work of having to provide the paper trail of money transfers but just leaving your money in the same account it is already in, unless instructed differently by your loan officer.
DON’T Change Bank Accounts
For all the same reasons you should not move money around your existing bank accounts, you should not open up a new bank account. If this is something you want to do, do it after you close.
There you have it. My 10 don’ts to protect your mortgage approval. If in doubt, ask your loan officer.