After you have made application for a mortgage to purchase your New Home, it’s very important that during the loan process you take extra special care of your financial and credit “state of affairs”.
The loan process is just like it sounds. It’s a process, and it’s not over until your loan closes. Until then, income, liabilities, and assets will continue to be scrutinized to make sure they fit in with any guidelines established for the particular loan. All borrowers are different, and none of this is written in stone, but in general it is best to avoid these common mistakes:
- Do not risk making late payments on your mortgage, credit cards, car loans, student loans, rent, etc. Nothing will drag down your credit scores faster than very recent late payments. If your new home is being built, you need to be extra careful over these 3-6 months to avoid any late payments.
- Do not take on new debt. All lenders will check your credit report just before funding the loan to verify that you have not added any new monthly payments to your overall debt picture. Car payments, increased credit card balances, etc. can increase your debt ratio beyond the limits allowed by lender. I know it’s tempting, but its best to wait until after closing to start the shopping spree.
- Do not pay off any debt other than installments debts that are scheduled to be paid off with regular on time payments.
- Do not spend your cash reserves. While avoiding an increase to your monthly debt payment is important, it’s also a bad idea to use your savings to pay cash for significant items as well. A lot of loans programs require the borrowers to have a certain amount of reserves after closing.
- Do not deposit funds into your account that cannot be sourced with a paper trail. New money laundering laws as well as mortgage underwriting guidelines mandate all
- Do not change jobs. I realize sometimes this can be unavoidable, but if at all possible, wait until you’ve closed. Lenders verify employment within a day or so of funding the loan and will almost always cancel the deal if your employment has changed. Switching from one employer to another with the same job description may not guarantee a problem, but stability is the key here.
- Do not switch jobs if the new one is in a completely different field, and do not, under any circumstances, decide to become self employed or commissioned. If you do, your income will not be useful for another two years, so stay put if at all possible.
- Do not co-sign for anything. Many borrowers believe there is no harm in co-signing with the rationale that their son or daughter or whoever – is making the payment, so it doesn’t matter. If your name is attached to a new debt, it will be treated as yours and factored into your debt ratio.
- Do not lease a new car. This should fall under the “no new debt” category, but for some reason some people get confused about this and think leasing is not the same as buying, so I’m making a separate mention of it here. The bottom line is it’s still an expense that comes out of your income, so it can still push you over the limit with your debt ratio. Be patient, wait a few weeks.
Also it is best to Avoid credit inquiries if you can. i.e. applying for a new credit card. Though not as damaging in the past as far as credit score is concerned, a lot of recent inquiries can affect your score. The presence inquiries can slow your loan process as well, as the underwriter will need to document that you did not obtain any undeclared debt from the inquiries.
Please call me with any questions at 866.435.6553