7 Mistakes to Avoid Once You’ve Been Pre-Approved for a Mortgage
If you’ve been pre-approved for a mortgage then congratulations are in order! This is an exciting first step in your home buying process. Keyword: First step.
Receiving your pre-approval provides parameters for “how much house” you can afford, giving you a starting point as you search the market for your dream home. But homebuyers often forget that their actions during the homebuying process can impact their approval rate, and ultimately prolong or ruin the final step: closing on your home (and if you’re buying and selling property at the same time, that throws a huge wrench in your plans.)
There are few feelings worse than getting to the end of the homebuying process only to find your mortgage rate has changed. Avoid that headache by steering clear of these common mistakes:
1. Don’t quit your job. Employment verification happens a few days before closing, and without a guaranteed source of income, you could lose your entire approval altogether. Simply changing jobs can even impact your pre-approval if your new income has decreased you may not qualify for the mortgage you originally applied for, always speak to your Mortgage Loan Officer before you make a change. Of course, life happens. If you’re faced with an unexpected layoff, the best thing you can do is be open and honest with your Mortgage Loan Officer (MLO) so they can help troubleshoot the situation with your loan provider ASAP.
2. Don’t move money around. Many homebuyers start to move money out of their savings and 401k accounts to prepare for their down payment, but all mortgage deposits are tracked. Big changes in your financial accounts will require more paperwork (and ultimately, more time) to verify funding sources before the loan is finalized, so it’s best to keep everything status quo until your loan is approved.
3. Don’t take money out from under your mattress either. When it comes to buying a home, cash is not king. Since all deposits are tracked, large amounts of cash stowed away at home versus your bank cannot be sourced. A “paper trail” for your money is important.
4. Don’t apply for new credit. All loans, including mortgages, are approved based on your debt/income ratio – and applying for new lines of credit can skew any pre-approval rate. We once worked with a member who was in the process of buying a home and decided to also purchase a new car. Had her car payment been just $20 more per month, she would have needed to restructure her entire mortgage. She quite literally almost drove herself out of a mortgage! Reserve any new loan applications for after your mortgage is finalized.
5. Don’t ruin your existing credit. A good credit score is essential for mortgage approvals. Keep your credit card balances below 25-30% of your limit, which may mean holding off on furniture and appliance purchases. Do not, by any means, max out or overcharge your credit cards, and be sure to always make your payments on time. If you find yourself in debt trouble, consider ways to offset high interest rates.
6. Don’t (inadvertently) live a double life. Avoid any actions that could cause a red flag, like changing your name or address, or applying for a P.O. Box. If you are newly married and haven’t changed your name, do so prior to applying for your mortgage. Or, if you have moved, make sure to change your address on your driver’s license. All information on your bank statement and driver’s license must match. When your lender enters the underwriting phase, inconsistent information will likely cause your loan to be suspended.
7. Don’t think you make the rules. The mortgage application process isn’t easy. It comes with (seemingly) never-ending amounts of paperwork and can feel like you’re working a second job. But homebuyers must follow directions exactly to make sure the process isn’t delayed. That means if you’re asked to scan and send a 50-page bank statement, your lender needs to see all 50 pages.
These mistakes can all be avoided with consistent, honest and open communication with your MLO. Think of us as a bartender or a priest – we are here to listen, regardless of the circumstance. A little guidance goes a long way, and before you know it, you’ll be in your new home.