Buying a new home is a very exciting time for a Purchaser. Getting through the home inspection, contract signing and mortgage commitment can seem like great obstacles to face. However, once these obstacles are conquered a Purchaser may feel like they have almost reached the finish line and will surely be the owner of their new home in no time at all.
However, there are 6 common mistakes a Purchaser can make between the time of applying for a mortgage and the actual closing. Lets explore.
1. New Credit Card Debt. During the initial mortgage approval process a lender will check a borrower’s credit score and credit balances to determine debt to income ratio. Once credit has been pulled it is wise to not use credit cards and increase debt prior to closing. A borrower may wish to get a jumpstart on purchasing new items for their home such as furniture or appliances. However, it is possible the lender will re pull credit prior to closing and if debt has increased whether slightly or significantly this could have a severe impact on loan approval. Therefore, it is best to put credit cards on hold until after the closing to be safe. It is also not recommended to close out credit accounts during the mortgage approval process.
2. Negative Updates to Credit Report. A borrower may have excellent credit and initially receive lender approval easily. However, it is important to remain on top of credit during the mortgage approval process. Do not miss any monthly payments, do not change any payment schedules and do not be late on any monthly payments. Just one late payment can severely impact a credit score and if a lender re pulls credit prior to closing this could kill the loan. Make sure to make all credit card payments early or on time.
3. New Car Loan. Buying a new car during the mortgage approval process may not kill the deal but it certainly can. If a new car becomes a necessity during this time or a great deal comes along that is hard to pass up a borrower must speak with their loan officer prior to obtaining any type of auto loan. This new loan will indeed change the debt to income ratio and in turn cause the borrower to loose lender approval.
4. Co-signing on another person’s loan. This is always a risky situation but even more so during a borrower’s own mortgage approval time period. Acting as a co-signor on another person’s loan changes debt to income ratio simply because if the primary borrower stops paying the loan the co-signor is now responsible for the debt. The lender will view this as the borrower’s money possibly going elsewhere and this could potentially kill the loan.
5. A New Job. A day or two prior to closing the lender will conduct an employment verification. If the borrower’s job has changed since the initial loan application it can create a big problem and quite possibly kill the loan. The lender is looking for income and job stability and issued a commitment letter based on this. A new job is a red flag to the lender evidencing that this stability may now be in jeopardy. Switching from a salary based job to a commission based job during the mortgage approval process can also pose an issue to the lender. The lender will not have an average history of income for the borrower and this too can kill financing.
6. Bank Deposits and Gifts. Any bank deposits made, whether large or small, during the mortgage approval process must be properly documented. The lender may question these deposits and without the proper documentation, these deposits may kill the loan. Additionally, any cash gifts deposited by a borrower during the approval process should be adequately documented and proper gift documents required by the lender must be completed.
Prepared by Adam Leitman Bailey, P.C. attorney, Rosemary Liuzzo Mohamed.