for Every Homebuyer
The Do's and Dont's of Mortgage Approval
Avoid Costly Mistakes and Protect Your Eligibility
Like wasting time? How about wasting money? We'll go out on a limb and safely assume that the answer to both of those questions is a resounding "no". Far be it from us to tell you how to manage your finances outside of the mortgage approval process. However, when you are seeking mortgage loan approval, it is very important to avoid these pitfalls and make sure that your efforts are not expended needlessly. Here's a list of what you should not do if you are in the loan process and your mortgage loan has not yet fully closed and funded:
Your "Don't Do It" List:
This is a handy list that neatly sums up among the most common pitfalls that a borrower can fall into before closing and funding. Quite a handful of these should be avoided whether you are in the process of obtaining a mortgage or not. As a general rule of thumb, consult with your loan officer before making even moderately significant financial decisions.
Quitting Your Job
This one is pretty self-explanatory. While in the mortgage approval process, quitting your job or changing your employer can have drastic impacts on your ability to obtain mortgage financing. In the event of quitting your job before closing and funding, your loan will likely be denied entirely.
Salary to Commission
Changing your primary method of compensation from salary to commission will negatively impact your qualifying income when in the process of mortgage approval, and subsequently will affect your odds of approval. Commission-based income typically must have at least 1 year of history.
W2 to Self-Employed
This is another huge one. While changing from self-employed to W2 employee status is acceptable without delay to most lenders, changing from W2 employment to self-employment is not. 1099 self employed income generally must have 1 to 2 years of history to be considered.
Taking on New Debt
If you want loan approval, it's best to wait until after closing and funding to get that yacht or supercar financed. Any new lines of credit (credit cards, HELOCs, etc.) or long term debt will be scrutinized during the loan process. Wait until after the closing and funding of the loan to open new debt.
Increasing Existing Debt
This is similar in principal to the above warning, but concerns any existing debt you may hold. Credit card debt is among the most common form of consumer debt in America. While in the loan process, you should avoid increasing your debt balances significantly, as your DTI will also increase.
Late Payments
This should be strictly adhered to even if not seeking mortgage loan approval, but it is critically important if you are. Making even a single late payment, regardless of the past due amount, can absolutely hammer your credit health and lead to loan denial.
Cosigning Debt
So a family member or friend needs you to cosign that car loan or home loan for them to qualify? Any other time would be free of complications, but you should avoid cosigning on any debt during the loan approval process at all costs. Any cosigned debt will increase your DTI, affecting your approval.
Closing Credit Accounts
Didn't we just inform you that taking on new debt is bad? Shouldn't closing certain accounts be beneficial then? Not at all. When a consumer requests a tradeline to be closed, it can negatively impact their credit score. Postpone this until after closing if you can.
Large Withdrawals
Avoid making large withdrawals from accounts holding your funds for closing, such as checking, savings, or stock brokerage accounts. If you must make a significant withdrawal, ensure that your closing costs can still be covered by the remainder, and ask your loan officer ahead of time.
Large Deposits
Deposits are good right? Not all the time. So long as your deposit can be traced with a paper trail that shows an origin of acceptable status, you will be fine. However, if you suddenly deposit $50,000 of the cold hard cash from under your mattress, that will not fly. Ask your lender about large deposits.
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