Once you’re pre-approved for your new home, it’s important to maintain your pre-approval status until after your loan closes. Your pre-approval is based on a financial “snapshot” taken at the time it was issued. Because your lender is required to do another credit check before final approval, anything that changes with your financial status may also change the terms of the loan you’re offered. Significant changes in your financial situation could even make you ineligible for the loan for which you originally applied. Follow these critical tips to prevent any surprises at closing.
- Do keep current on all of your payments. This applies especially to your current mortgage (if you have one) or rent payments, but also to all other bills. One of the key things underwriters look for is both your ability and willingness to pay your mortgage payment on time. Recent late payments make your loan look a lot riskier.
- Do keep your Loan Officer up to date about your financial status. If you receive new unexpected income (such as a cash gift, bonus, inheritance or proceeds from a cash sale), inform your Loan Officer. These don’t hurt — and may even improve — your financial status in the eyes of the underwriter, but you’ll be expected to document any substantial changes.
- Do notify your Loan Officer of any purchase negotiation details — any seller concessions (like a reduced price or offers to share closing or other costs) — or other details of purchase offers you made. These may change the terms of your loan.
- Do be prepared to respond to lender requests. Though the pre-approval process can require the same kinds of documentation and verification as the final processing, updated or additional documentation may be needed if more than 30 days have passed or if anything has changed in the meantime.
- Do file your tax returns and pay your taxes on time. Most lenders request a copy of your tax return directly from the IRS. Not filing or paying on time can have serious negative effects on your loan qualification.
- Do stay in your current job, if you can help it. Underwriters need to see that you have a history of steady employment for the most recent two full years and verify that your income will most likely continue.
- Don’t make any major purchases. You may be excited to begin furnishing your new home, but it’s advisable to wait until after your mortgage closes. This applies both to credit and cash purchases. Buying anything major that requires opening a new account or changes your payment amount on an existing account could reduce your credit score. A large cash purchase will reduce cash reserves available for making a down payment or paying for loan fees.
- Don’t apply for new loans or credit cards, or consolidate your existing debt unless specifically advised to do so. While this may be beneficial at other times, consolidating multiple credit balances to a single card could reduce your total amount of available credit, a major consideration for underwriters.
- Don’t pay off old accounts listed as delinquent or as a charge-off until after closing unless specifically advised to do so. Paying off old outstanding accounts (legitimately owed or not) allows the lender to relist the charge-off delinquency again on your credit report.
Avoid these financial pitfalls whenever possible. If you have any questions, or even if you just want a second opinion, give us a call at 1-866-742-5158 to speak with a Loan Officer. We’re here to help!