From the time you start the loan application process all the way to closing day, every financial move you make could affect whether that loan is approved or denied. Guarantees are hard to come by in the mortgage industry.
Let’s take a look five financial mistakes to avoid making before you close on a home loan.
Moving Money Around
Lenders are going to take a long, hard look into your finances, from tax returns and pay stubs to bank statements and sometimes more.
You’ll need to explain any questionable deposits to or withdrawals from your account. Moving money around can cause concern for lenders. They’re looking for regular, verifiable transactions that come with a paper trail.
By all means, you can often use gift funds for a down payment or other mortgage costs. But you’ll need clear and consistent documentation. You can’t just dump a bunch of cash in your account and expect to sail through closing without questions.
Taking on New Debt During A Loan Application
Buying a new home can be an exciting time, especially as you start thinking about how to make it your own. Don’t let that turn into a shopping spree.
Racking up new debt or taking out additional credit will raise major red flags and could tank your credit score. That, in turn, could kill your loan outright.
It’s typically best to avoid making any major purchases or seeking new credit until after your loan closes and funds. Notify your loan officer as soon as possible if you absolutely have to charge something.
Co-Signing a Loan
Co-signing on a loan isn’t a terribly sound financial move under the best of circumstances. It’s definitely a bad idea if you’re currently under contract on a home.
Co-signing a loan for someone makes you financially liable for their debt. Lenders will factor the new responsibility into your overall affordability profile. That new debt could stretch an already thin debt-to-income (DTI) ratio beyond qualifying range.
Getting Behind on Bills
One 30-day late payment can cause your credit score to slip anywhere from 60 to 110 points. Even if you have sky-high credit, that kind of hit can seriously affect your ability to land a loan.
If that 30-day late payment is for a mortgage or rent, some lenders may toss your application altogether. Others may be able to work with a single 30-day late payment in the last 12 months. Don’t take any chances – pay your bills on time.
You don’t always have control over this last area. Needless to say, losing your job during the home loan process is going to be a big problem.
Lenders want to see a track record of stable, reliable income that’s likely to continue. Taking a new job in the same field may not be a huge problem. It’ll still trigger a new layer of scrutiny and further explanation.
But jumping into an entirely different career field or starting your own business will likely force you to put your homebuying dreams on hold.
Even something like shifting your income to a commission basis or getting a promotion can impact your loan. Regardless of the issue, constant communication with your loan officer is key, especially if things are in flux.
Let common sense and clear communication rule the day. Those two can go a long way toward getting you to closing.
About the author: Chris Birk writes about real estate and the mortgage industry for a host of sites and publications, from Lenderama and Bigger Pockets to the Huffington Post and Motley Fool. A former newspaper and magazine writer, he is also content director for a leading VA lender. Follow him on Google+.