As a homebuyer, you don’t want anything to jeopardize your chances of closing on the home of your dreams by reducing the amount of financing you qualify for resulting in a higher interest rate on your mortgage or causing a lender to reject your mortgage application. With that in mind, here are ten things you never do right before or after you apply for a mortgage:
DON’T max out credit cards. Exceeding your credit limit or swiping your card too often will hurt your credit score. One thing that affects your score is your debt to income ratio (DTI). That’s the amount of credit you’ve used relative to your credit line and ideally you want to keep that number as low as possible—preferably below 30%.
- DON’T close any of your credit card accounts, even if you no longer use or need them. Closing your accounts sets off a chain reaction, reducing your available credit, raising your DTI ratio, and potentially putting your loan at risk. While it may sound like a good idea to close the credit accounts that you are not currently using, it can cause mortgage application problems if you are not careful.
DON’T attempt to consolidate bills before speaking to a lender. The lender can advise you if this needs to be done.
DON’T be tempted by low introductory rates or store discounts offered with new credit cards. Each time a creditor opens an account for you they check your credit. Each time they check your credit, an inquiry is created in your file, which reduces your credit rating. And each new account that is opened will further reduce your credit rating because you are taking on more debt.
DON’T buy or lease a vehicle. Lenders look carefully at the DTI ratio and a large payment such as a car lease or car loan can greatly affect those ratios and prevent you from qualifying. In addition, each time an auto dealer or car insurance company checks your credit, your credit rating will be reduced.
DON’T buy new furniture or major appliances for the “new home.” If the new purchase increases your debt loan, it can disqualify you from the loan or deplete your funds to close. And don’t forget, each time someone checks your credit or you open a new account, your credit rating will be reduced.
DON’T move assets from one bank to another. These show up as new accounts or large deposits and complicate the application process, as you must then document the source of funds for each new account. It is better to let the lender verify each account before you move funds around.
- DON’T change jobs. A lender is going to want to make sure you have a stable source of income and you can afford to pay a mortgage bill every month. Even if you earned bonuses or commissions in your previous job, the lender will not be able to use this income in a new job until you have a year or two of earnings history behind you, which could seriously impact your ability to qualify for a loan.
DON’T pack or ship information that may be needed for the loan application. Important paperwork such as W2s, divorce decrees and tax returns should not be sent with your household goods. Duplicate copies can take weeks.
- DON’T throw away pay stubs
and bank statements. Save everything
until after your loan closes. You will
need to provide one or two months’ worth of documents when you apply for your
loan, and you may need to provide additional paperwork prior to closing.
