Buying a home is almost always an exciting journey, but it can also come with its own share of nerve-racking stress, making the experience less than fun. No doubt, you’re getting all kinds of advice – you know, the homebuyers’ do’s and don’ts, so I thought I’d jot down some quick tips on what not to do after applying for a mortgage loan.
Keep in mind, it can be a little trying on the nerves in the early stages of the process when the homebuyers are waiting to see if they actually qualify for the mortgage and how much they can borrow. There are some things you can do to increase your chances of qualifying and reduce the stress involved in making these common mistakes. Here are 5 Roseburg homebuyers’ don’ts after applying for a mortgage.
1. Don’t Open or Close Lines of Credit
If you’re a potential homebuyer and are applying for a mortgage, you should avoid doing both, opening or closing lines of credit. You might not feel like it would be a risk but opening or closing lines of credit can be a red flag when applying for a mortgage… Here’s why . . .
Should you get pre-approved for a mortgage before house hunting then? Of course, but pre-approval is not a guarantee that you will get the mortgage – you can still be denied, especially if you make the wrong decisions. It is important to note that your lender will check your credit during the pre-approval process – and again just before closing.
If there are any changes to your credit profile, it will almost certainly cause a slowdown, an adjustment to your qualification amount, or even worse… it could kill your pre-approval altogether.
Why is opening lines of credit a problem? Opening or closing lines of credit after the mortgage application can cause you serious trouble. It can lower your credit score and increase your debt-to-income ratio (DTI) – both are very important pieces of information your lender uses to approve or deny final approval of the mortgage.
What about closing lines of credit? Closing lines of credit can have the same final result. Closing a line of credit removes that part of your credit history from your credit report. And that can damage the necessary length of credit for mortgage approval.
I recommend not doing anything new with lines of credit… don’t open or close any lines without discussing it with your lender… or even better – until after closing escrow.
2. Don’t Borrow On Or Max Out Credit Cards
Similarly, you want to avoid borrowing on or maxing out credit/credit cards after applying for a mortgage. From experience, I would say that new credit card debt and maxing out a credit card are one of the worst things you can do before closing.
Why shouldn’t I borrow or max out credit cards when buying a house? The answer is simple; the increased debt as compared to your income will result in your qualifying for a smaller mortgage amount. It can also cause you to look like a higher-risk borrower and lower credit score. Not good when applying for a mortgage.
I recommend keeping credit use below 30% of your credit limit.
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It isn’t your actual total debt amount that matters so much. The more important thing is how much you owe relative to your credit limits. For example, if you owe $2,500 and your credit limit is $3,000, then that card is almost maxed out. This will most likely cause a reduced credit score… again, not good when applying for a mortgage.
3. Don’t Make Large Purchases on Credit
Similarly to the other don’ts… another related thing Roseburg homebuyers shouldn’t do after applying for a mortgage is to make any large purchase on credit. The new debt will increase your monthly payments, and this will absolutely be detrimental to your debt-to-income ratio (DTI) – one of the main things lenders factor into mortgage eligibility.
I totally understand the excitement of getting an offer accepted… you’re buying a house and that is exciting! I also understand the temptation homebuyers have to want to go out and buy new furniture and appliances for their new home or a new car for the garage.
Please don’t do this… it could kill your sale. Prepare yourself to handle this temptation when it comes up… because it probably will. Get the house first, then go buy the new stuff after closing.
4. Don’t Change Jobs
A job change can throw a serious monkey wrench into your home purchase. So, don’t change jobs after applying for a mortgage! Such a move may benefit your career, but it can endanger your mortgage approval. If you have a great job offer, talk to your lender before making any changes.
Likewise, you don’t want to go from being a W2 employee to a 1099 self-employed or vice-versa. Lenders want to be assured that you can repay your mortgage, so they’ll want to see that you have steady employment and a stable income. Any major changes can cause a roadblock.
So if you were pre-approved on the basis of your current job and income, a change before closing could harm your mortgage approval (at least the amount) and delay closing, or take away your mortgage qualification.
Lenders typically want to see a record of at least two consecutive years of steady employment and income. But if you change jobs after applying for a mortgage and before closing, you will break that two-year steady employment record.
5. Don’t Move Money Around
Lastly, after applying for a mortgage, you shouldn’t move money around. This may not seem like a big deal, but it matters to your lender.
Large withdrawals from and even deposits into your bank account or asset holdings will be a red flag for your lender. They may assume that you’ve taken out a loan and will then dig again into your debt-to-income ratio.
Of course, this doesn’t apply to transparent deposits such as a job bonus or income tax refund. But something like a large monetary gift or transfer from a friend or family member will send up a red flag.
Don’t Take Chances After Applying for a Mortgage
These are the 5 most important homebuyers’ don’ts after applying for a mortgage, but there are many other things that can also endanger your mortgage eligibility and/or delay closing. Don’t take any chances here. Homebuyers’ Don’ts After Applying for a Mortgage
By working with me, you’ll know you have an experienced Roseburg agent who can guide you through the whole process and help you avoid the pitfalls. So if you’re a Roseburg home buyers and want to be sure everything goes smoothly after applying for a mortgage, contact us today at 541-643-1131.