Applying for a Home Loan? Don’t Do These Things!
Buying a home is a long process – It can take months from the time you start looking until settlement. When you decide you’re ready to buy a home, you’ll need to examine your own finances closer than you ever have before. When you apply for a mortgage, you will need to submit a number of financial documents that the underwriter must review before approving your loan.
The Mortgage underwriter’s job is to evaluate your income, credit score and assets to make sure you’re a solid loan candidate. Basically, the mortgage lender wants to make sure you have the financial means to pay your mortgage - not just make the down payment but continue with the monthly payments.
It’s important to have your finances in order before you apply for a mortgage. However, that’s not enough. Once you complete the application and begin the mortgage process it’s important to keep your finances as similar as possible until closing.
There are so many factors that go into determining your loan eligibility - even the smallest details, such as your recent spending may affect your loan. As experienced mortgage lenders in New City, Orangeburg, and Nanuet; we prepared a helpful list of things to avoid while waiting for your mortgage loan to close.
Don’t Do These 10 Things While Waiting For Your Mortgage To Close
1. Don’t change jobs. Proof of steady income is one of the most important factors in the mortgage approval process. Switching jobs, quitting a job, or becoming self-employed while applying for a home loan could severely impact your ability to obtain a mortgage.
2. Don’t take on additional long-term debt. This includes buying a car, or even furniture for your new home. Additional financing will increase your debt-to-income ratio.
3. Don’t co-sign a loan for anyone during this time. In addition to not taking on any additional long-term debt, you should not cosign on a loan for someone else who is taking on long-term debt. When you cosign for someone, you agree to take responsibility for the loan should they default. This could raise a red flag for the mortgage underwriter because they do not know the primary signer of that loan or their ability to repay the loan.
4. Don’t increase your credit card usage or fall behind on your payments. It may be hard not to buy anything while you're searching for a home, but it is important to maintain similar spending habits and make your payments on time. Significant jumps in credit card usage will set off an alarm and could affect your eligibility for a lower interest rate. Learn more about responsible credit card use.
5. Don’t open or close a credit card. Applying for a credit card requires a credit check, which can affect your credit score. Closing a credit card could also potentially affect your credit score. Your credit score is one factor in determining what mortgage rate you are eligible for. Additionally, financial institutions look for credit consistency and stability. To reiterate what we suggested in number four, keep your credit habits the same.
6. Don’t change financial institutions. Not only do you want to show the lender that you have stable banking history, but you want to make it simple to access older information, should the lender need it. Mortgage lenders often ask to see three to six months’ worth of statements when reviewing your financial history. Changing financial institutions during this process could make it difficult for you to access your financial history.
7. Don’t spend down your savings or investment accounts. Your mortgage eligibility will be determined based upon your ability to repay the loan. Significantly decreasing savings or investment accounts may cause the lenders to question your ability to repay the loan.
8. Don’t make large deposits into your accounts. You might think increasing your savings will make you look more favorable, but this can raise a red flag. When mortgage lenders see an unexpected sudden deposit, they will question where the money came from. Money for your down payment should be in your savings account for at least two months. If you are expecting a down payment gift from a relative, you need to let the mortgage lender know.
9. Don’t neglect outstanding debts or liabilities. The mortgage underwriter’s job is to determine your ability to repay your mortgage. Failing to pay any current debts or liabilities could cause the lender to question your ability to pay your mortgage loan and hurt your chances of getting approved.
10. Don't misrepresent your income. It’s important to be as accurate as possible when it comes to your income. This is a huge factor in determining your ability to repay the mortgage. Misrepresenting your income can be more harmful than just not getting the right loan. When you misrepresent your income, you are committing mortgage fraud. This is a serious offense and can potentially lead to prosecution and jail time.
In summary, don’t do anything that will have a significant impact on your financial situation. Any changes, good or bad, could have a negative impact on your mortgage application or extend the approval timeline. Get your finances in order when you start planning to purchase a home and keep them in order until closing day. Keeping these good financial habits can even help prepare you for responsible homeownership.
Read more about common mistakes made by first-time homebuyers.
Get Your Home Loan Questions Answered
At Palisades Credit Union, we strive to help our Rockland and Bergen County members finance the home of their dreams. We understand that finding the right home and mortgage sets a solid foundation for successful homeownership. Our mortgage lenders are here to answer your questions and help guide you through the mortgage loan process. Learn more about home financing in Nanuet, Orangeburg and New City or contact a mortgage lender to apply for a mortgage today.
More helpful tips for homebuyers:
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