Mortgage Do’s and Dont’s
Do’s and Don’ts When Qualifying for a Mortgage
Congratulations! You are purchasing a new home! Between the times you receive mortgage pre-approval and your new home closing, keeping your finances in order is an important task. Your mortgage pre-approval is based on many factors including your credit score, current debts, income and even household size for some loan types. Something that may seem inconsequential to you could have an impact on your mortgage approval, and the last thing anyone wants is your dream to fall apart because of a simple misstep. So here are some important Do’s and Don’ts before applying for your mortgage and during the process.
Do’s When Qualifying for a Mortgage
- DO keep all existing credit accounts open.
- DO maintain your employment at your current job – if you do not like your job – keep it until you buy a home.
We, your mortgage company will verify employment usually three days before closing. If you lost your job – you cannot hide it, they will find out.
- DO pay all collections, judgements, or tax liens reported within one year – this will stop you immediately if you have any. When you pay them off – you must provide written documentation.
- DO stay current on existing accounts – Do not be late on your payments because that will stop your qualification for a home loan. General guidelines is that a lender wants to see a year without any late payments.
- DO get fully pre-approved. An initial mortgage pre-qualification (usually an online form) is an estimate of how much you can afford based on the information you submit. The pre-approval is issued after you have completed a full application and provided the supporting documentation to the lender, and will assure you of a more specific qualification amount and monthly payment.
- DO avoid credit inquiries or applying for any new credit, which can affect your credit score.
- DO start a savings plan, particularly if your loan approval requires you to have reserves (money saved in the bank) at the time of closing.
- DO keep all of your personal documents including pay stubs, bank statements, proof of earnest money deposit and other docs requested by your lender, as they will be required prior to closing.
- DO keep us, your lender, informed of any major life changes including; marital status, change in household size or change in household income (increase or decrease).
- DO pay off debt, or keep it paid down. This will put you in a better financial position, and help with your debt-to-income ratios (part of your mortgage approval). We will let you know if debt NEEDS to be paid down, and not racking up any new debt is important regardless.
Don’ts When Qualifying for a Mortgage Home
- DON’T apply for new credit of any kind – Credit card, target card, etc.
- DON’T MAX OUT or overcharge existing credit cards.
- DON’T consolidate your debt to one or two credit cards.
- DON’T close any revolving credit accounts, even if they have a $0 balance. This could negatively affect your credit score as it will change your percentage of available credit, credit history, mix of credit and account payment history.
- DON’T make any large purchases – like a car, furniture, etc. I have had several occasions where people went out and charged furniture to a credit card and could not qualify for a home loan.
- DON’T make any large deposits into any of your accounts – new guidelines for mortgages state any deposit over $300 has to be explained in a brief letter. Paychecks, alimony etc. Do not need to be explained. It is the $500 you received for selling your old appliances on Craigslist.
- DON’T enter any deferred payment plans. This is a popular option when purchasing furniture, but resist the urge! Even if the payments won’t start until six months down the road, they will show on your credit report as debt and affect your debt-to-income ratio and possibly your credit score.
- DON’T finance or charge any new debt or co-sign on any loans. New debt – even as a co-signer – will affect your debt-to-income ratio and credit score.
- DON’T acquire any NSF (Non-Sufficient Funds / overdraft) fees from your bank. Make sure the funds in your bank account cover anything being paid out; mortgage lenders look at these fees as an inability to manage money and a mortgage risk factor.
- DON’T change jobs or become self-employed without discussing it with your lender first. Your pre-approval is based on your current job history and income, so making a change – even if it is moving to a higher-paying job – could change your ability to qualify for your new home.
Now you are armed with the knowledge to make your home buying journey successful and stress-free! As always, we are here to help and answer any questions you may have about your mortgage, credit, or anything to do with purchasing the new home of your dreams! Give us a call if you have any questions.
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