If you’re getting ready to buy a home, jumping a few steps ahead and thinking about moving in and making it your own is exciting. But before you get too far down the emotional path, there are some key things to remember after you apply for your mortgage and close. Here’s a list of things to remember when applying for a home loan.
Don’t Deposit Large Sums of Cash
Lenders need to source your money, and cash isn’t easily traceable. Before depositing cash into your accounts, discuss with your loan officer how to document your transactions properly.
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. People with new debt have higher debt-to-income ratios (how much debt you have compared to your monthly income). Since higher ratios make for riskier loans, borrowers may no longer qualify for their mortgage. Resist the temptation to make large purchases, even furniture or appliances.
Don’t Cosign Loans for Anyone
When you cosign 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 them 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 Apply for New Credit
It doesn’t matter whether it’s a new credit card or a new car. Organizations running your credit report in multiple financial channels (mortgage, credit card, auto, etc.) will impact your FICO® score. Lower credit scores can determine your interest rate and possibly even your eligibility for approval.
Don’t 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 significant component of your score is your length and depth of credit history (as opposed to just your payment history) and your total credit usage as a percentage of available credit. Closing accounts hurts both of those parts of your score.
Do Discuss Changes with Your Lender
Be upfront about any changes that occur or expect to happen when talking with your lender. Blips in income, assets, or credit should be reviewed and executed to ensure your home loan can still be approved. If your job or employment status has changed recently, share that with your lender. Ultimately, it’s best to fully disclose and discuss your intentions with your loan officer before you do anything financial.
Bottom Line
You want your home purchase to go as smoothly as possible. Remember, before you make any large purchases, move your money around, or make significant life changes, consult your lender – someone qualified to explain how your financial decisions may impact your home loan.
