Things to avoid if you’re applying for a mortgage
When you’re applying for a mortgage, you may think it is as easy as having money in the bank and a good credit score–but it’s much more than that! Just remember, take these precautions throughout the mortgage process to close to ensure you’re making it easy on yourself.
You may want to break open your piggy bank and put those savings in your bank account but wait! If it is a larger sum of money, it may be best to hold off on depositing it right away. Lenders must be able to trace where all the money comes from, and cash is not easily traceable. If you are unsure if what you have is “a lot” of money, reach out to your lender and ask them how they’d like you proceed.
Next, avoid making large purchases. You may want those new appliances or that perfect couch for your new living room but hold off! When lenders look at your finances, they want to identify what your debt-to-income ratio is, and when they see that suddenly your debt is higher, that can set off some red flags. If they see that debt-to-income ratio is high, they can see that as more of a risk and there is more of a chance that they will deny your request for a mortgage.
Have someone asking you to co-sign and need a good excuse for why you can’t? If you are in the mortgage process and someone asks you to co-sign, please remember– even if you are not the one repaying that loan, in the lenders eyes you have now assumed that debt. The new co-signed amount will now contribute to your debt-to-income ratio, despite you not being the one paying.
Next, don’t sign up for a new bank or switch bank account holders. Lenders will need statements at your bank and need sources for where your money is coming from and having bank account/banking consistency will make for a much smoother transaction.
Applying for new credit, a new credit card, a new car–all is a no go when you are applying for a mortgage. When applying for any new credit, they’ll have to run your credit through multiple sources and all of that will impact your credit score. That lowering of your credit score can absolutely diminish your chances of getting your mortgage and if not, it can change your interest rate for the worse.
Another don’t is to not close any accounts. You may have an old credit card that you never use and think it best to close it, but don’t! Some think that that’s less debt to income if you don’t have that credit card, but the length of an account has a huge impact on your credit health and if it’s a long-standing account with not a lot of usage, that can help your credit score and closing it would impact it negatively.
Overall, be up front with your lender and ask questions before doing things. They will know how to best serve you and can answer your questions to make this transaction much easier. They will be able to tell you how decisions will impact your buying power and how to get you to where you want to be. If you are currently in the market to buy a home and don’t have a great lender, please reach out to me, I’d be happy to give you a list of options!