While it may seem obvious that you need to keep paying your bills during the period between a loan preapproval and your settlement date, some would-be borrowers neglect their finances in the excitement of shopping for a home.
“A preapproval letter is typically valid for 90 days but with the disclaimer that if anything changes with your finances it can impact your preapproval,” says Patricia Napgezek, a senior loan officer with Inlanta Mortgage in Brookfield, Wis. “After 90 days, we can do a renewal letter with a recheck of your pay stubs and credit.”
And, away we go…
No. 1: Don’t apply for new credit.
Mortgage lenders are required to do a second credit check before a final loan approval, says Doug Benner, a loan officer with Embrace Home Loans in Rockville, Md.
“If it’s just an inquiry, that usually doesn’t cause a problem, but if you’ve opened a new account, then it will have to be verified, and that could delay your settlement,” he says.
Your credit score could change because of the new credit, which may mean that your interest rate must be adjusted.
No. 2: Don’t make any major purchases.
If you buy furniture or appliances with credit, your lender will need to factor in the payments to your debt-to-income ratio, which could result in a canceled or delayed settlement. If you pay cash, you’ll have fewer assets to use for a down payment and cash reserves, which could have a similar impact, Benner says.
No. 3: Don’t pay off all your debt.
“Every move you make with your money will have an impact, so you should consult with your lender before you do anything,” says Brian Koss, executive vice president of Mortgage Network in Danvers, Mass. “Even if you pay off your credit card debt, it can hurt you if you close out your account or reduce your cash reserves. We’ll also need to know where the money came from to pay off the debt.”
No. 4: Don’t co-sign any new loans.
Koss says borrowers sometimes assume that co-signing a student loan or car loan won’t affect their credit, but it’s considered a debt for both signers, especially when it’s a new loan.
“If you can give us 12 months of canceled checks that shows that the co-signer is paying the debt, we can work with that, but payments on a newer loan will be calculated as part of your debt-to-income ratio,” Koss says.
No. 5: Don’t change jobs.
“If you can avoid it, try not to change jobs after a preapproval,” Koss says. “Even if it seems like a good move, we’ll need to verify your employment and you’ll need one or possibly two pay stubs to prove your new salary, which could delay your settlement.”
No. 6: Don’t ignore any lender requests.
“If your lender recommends something, you should follow directions and do it,” Napgezek says. “You should provide all documents as soon as they are requested, because delaying could potentially delay your settlement.”
No. 7: Stay current on your existing accounts.
Koss says that you must pay all bills on time and make sure you don’t have an overdraft on any account. If you have payments automatically billed to a credit card, you should continue that practice. “Your preapproval is a snapshot in time, and you want to make sure your finances stay as close to that snapshot as possible,” he says.
No. 8: Keep a paper trail of all deposits.
Adding to your assets isn’t a problem, but you have to provide complete documentation of any deposits other than your usual paycheck, says Joel Gurman, regional vice president with Quicken Loans in Detroit. “Make sure you document everything,” he says. “Be proactive and contact your lender if you receive a bonus or if you’re cashing in your [certificates of deposit] to consolidate your assets. A good lender can advise you on what you’ll need for a paper trail.”
No. 9: Discuss seller concessions.
“Even in a sellers market, there’s sometimes an opportunity to negotiate help with closing costs,” Gurman says. “Your lender needs to know if you are intending to ask for seller concessions or if you get them so that they can be factored into the loan approval.
“Make sure you discuss everything with your lender and stay in constant contact throughout the loan process,” he says.
No. 10: DO call your lender with any questions!
Notice the last line in #9? It seems like common sense, since the lender’s job is to help you get financed! But, you’d be surprised to learn how many people make these 9 mistakes, some even twice, and even after being told and given an information handout!