Probably every real estate agent has a story about a client who bought something big at the same time they were buying a house, and how that other purchase caused all kinds of chaos with their home loan.
Once you’ve applied for a mortgage, you have to be extra cautious and conservative with anything involving your personal finances. Here are six key things to avoid after you apply for a mortgage and before you close on your new home.
1. Don’t Deposit Cash into Your Bank Accounts Before Speaking with Your Bank or Lender
Lenders need to source your money, and cash isn’t easily traceable. Before you deposit any amount of cash into your accounts, discuss the proper way to document your transactions with your loan officer.
2. Don’t Make Any Large Purchases Like a New Car or Furniture for Your Home
New debt comes with new monthly obligations. New obligations create new qualifications. People with new debt have higher debt-to-income ratios. Since higher ratios make for riskier loans, qualified borrowers may end up no longer qualifying for their mortgage.
3. Don’t Co-Sign Other Loans for Anyone
When you co-sign, you’re obligated. 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 the payments against you.
4. Don’t Change Bank Accounts
Remember, 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.
5. Don’t Apply for New Credit
It doesn’t matter whether it’s a new credit card or a new car. When you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO® score will be impacted. Lower credit scores can determine your interest rate and possibly even your eligibility for approval.
6. Don’t Close Any Credit Accounts
Many buyers believe having less available credit makes them less risky and more likely to be approved. This isn’t true. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those determinants of your score.
It’s exciting to start thinking about buying a home, moving in, and decorating your new place, but before you make any large purchases, move your money around, or make any major life changes, be sure to consult your lender — someone who’s qualified to explain how your financial decisions may impact your home loan.
Any blip in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. If your job or employment status has changed recently, share that with your lender as well. The best plan is to fully disclose and discuss your intentions with your loan officer before you do anything financial in nature.