Homebuyers may not realize it, but there’s still important work to do after they’ve submitted their mortgage application. That work is to maintain the financial picture provided in their application until a decision has been made. If lenders see changes to an applicant’s finances after they apply, no matter how small the change may seem, it could hurt their chances of securing a loan. That means there are actions buyers should take—and a few to avoid—that will increase their odds of a favorable outcome during the mortgage process.
- Maintain your financial status quo while your application is pending, talk to your mortgage loan officer before making any changes.
- Respond to any questions from your lender as quickly as possible.
- Remember, the positive outcome of an approval is significantly better than the disappointment of a rejection due to poorly timed changes to your finances.
Things you should do
Your lender may have questions or request documentation during the processing or underwriting phases of the mortgage process. Failing to respond to inquiries in a timely manner may delay your approval. Your lender should set expectations around how they will communicate with you after you’ve applied. Keep an eye out for their messages and respond as quickly as possible. If you don’t have an immediate answer, reply to let them know you saw the message and are working on it. Any response is better than radio silence.
Order a home inspection
Although it’s not usually required by the lender, if you elect to get a home inspection, schedule it as soon as possible to discover if there’s anything wrong with the home you want to purchase. You’ll want as much time to negotiate with the seller before closing as possible, plus the further you go into the loan origination process the more risk you have of losing money for things like appraisals, credit reports, and other hard costs that can’t be refunded. If you choose to waive the inspection to make a more competitive offer, be sure to get one after you purchase the home. It’s better to be informed about the state of your home than let any potential issues remain unaddressed.
Continue paying bills on time
Late payments lower your credit score, and the rate and cost you pay for your mortgage are almost always linked to your credit score. Late payments on other debts are a major red flag for lenders because they raise the question: can you make your mortgage payments if you’re struggling to pay your other bills?
Shop for homeowners insurance
Since your home will serve as collateral for your loan, the lender will require you to have homeowners insurance to repair or replace the home in the event of major damage or its total loss. There may be a premium for certain types of insurance (flood, hurricane, fire, etc) depending on the location of the home. It’s a good idea to shop around for the best rate and coverage. You may find there are savings to be had by bundling multiple types of insurance with the same company.
Things you should not do
Don’t make major purchases
Lenders will look at how much of your existing credit is used to calculate your debt-to-income ratio. Major purchases can drastically raise this percentage, which may lower your chance of securing a mortgage. Even if you know you can afford a big purchase, it’s best to wait until after you close before making it.
Don’t take out additional credit
Opening up new credit lines has the potential to reduce your credit score as well as increase your debt-to-income (DTI) ratio. Both of these could be the difference between getting approved or not.
Don’t quit your current job or reduce your hours
The most critical thing lenders look at is your ability to repay the loan, which is dependent upon a steady source of income. If you’re paid hourly, any reduction in hours means less income to rely on for loan repayment. Similarly, quitting your job, even if you take a new one immediately, introduces new uncertainties since most employers have a 90 day probationary period for new employees. Changing jobs isn’t an automatic issue, especially if you stay in the same industry doing something similar to what you were doing previously. However, it’s always best to avoid such changes until after closing and to keep your Loan Officer informed if you must make a change during the origination process.
Don’t make large deposits without a paper trail
Lenders will question any large sums of money they see deposited into your checking or savings account. That might seem strange at first, but lenders need to know about all your other debts and payments when deciding whether to loan you money. A large deposit could be the result of a new loan you took out recently that’s not included in your debt ratio. If your mortgage allows family members to give you a cash gift to help fund your down payment, they will be required to provide a letter indicating the date, the amount, and the fact that it is not required to be repaid to them, so the lender knows it was a gift and not a private loan.
Do get expert advice. Don’t do it alone.
The most important “do and don’t” is to leverage expert advice when you need it. Your mortgage loan officer is happy to answer any questions you may have.
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