Getting financing for a new home can sometimes seem a little daunting. It seems like you’re on this never-ending wheel of providing your life history on paper – and then when you think you’ve provided the last of it … the lender wants more. It’s all to help you get your loan approved so you can realize your homeownership dreams. Believe me, we don’t want to keep asking you for documents any more than you want to provide them!
Another way to realize those dreams sooner is to keep your nose to the grindstone on a few items that could affect your chances of approval throughout the process. The process of buying a home starts the day you apply for the loan all the way until closing.
This blog is a re-do of a blog I did about three years ago – and it’s worth repeating because even though I go through these items with my buyers, they still “fall off the wagon” and miss some simple steps. My goal is to make it so that you know exactly what NOT to do while you’re in the loan process.
First, and foremost, credit is very important – not only on the day you applied, but even at the time of closing. Lenders will pull credit a few days within closing (called a credit refresh – no scores are pulled) to make sure you haven’t increased any balances, opened any new credit (big or small) or incur any new derogatory items.
So, it should go without saying, continue to pay your bills on time; don’t open any new credit and certainly, don’t increase balances on current credit. Oddly enough, don’t close any accounts either as this could have a negative effect on your scores.
Credit reports are good for 120 days, so if your process takes longer than that, you may need to have a full credit report (with scores) pulled again. If credit does need to be re-pulled, lower scores could mean not qualifying for the program you want, increased interest rate or increased monthly PMI. It’s important to keep your credit as shiny as possible just in case.
Here is the list of items to avoid while you’re in the process relating to your credit. Some items may be unavoidable, so it’s always best to chat with your lender about these or any future changes. Your lender is your ally – we are all trying to get you to the finish line!
- As mentioned, don’t open any new credit – credit cards, interest-free accounts for new furniture, etc, cars, co-signing for someone – anything. Just say “no!”
- Don’t close any accounts – this is something you can do after you close on your home if you really want the account to no longer be available to you. But again, it could bring your scores down temporarily.
- Don’t increase balances – you basically want all credit card balances to stay status quo during the process – a little up or down is okay. Believe it or not, just an additional $25 added to your debts could make it so you cannot qualify for your loan any longer – and that is NOT what you want to find out a few days before closing!
- Please don’t buy or lease a car – refer to #1
- Don’t pay off any collections unless your lender has advised you to do so.
- Try not to incur any collections. I realize this isn’t something you have control over, BUT, if you happen to get a past due notice during this process, please pay your bill so it doesn’t go to collection.
And what about your assets or your bank accounts? Believe it or not, changes to those could possibly affect your loan approval. For instance, with many first time programs, the buyer is required to have $1000 of their own money into the transaction. If there are a lot of cash deposits into the account, the lender will have a hard time proving the money is theirs, since cash is not acceptable for the transaction.
Here are the things to avoid with regards to your bank accounts.
- Don’t make any cash deposits. Though the money may be yours, we have no way to prove this. If you need the money for closing, the best advice is to use your cash for bills and spending money so your employment income can just keep building in your account. That is easily verifiable.
- Try hard not to bounce any checks. This can be a sign of money mismanagement.
- Please copy any checks you deposit that might not be from your work. Better yet, contact your lender first to make sure putting that money in is okay – they will advise what to do in order to document this is your money.
- Talk to your lender FIRST before receiving any money as a gift. There are steps to follow and it’s much easier to document forward vs. having to chase down paperwork.
- Don’t deposit any unsecured funds. Loans you take out not tied to your 401K or cash advances on a credit card are unacceptable sources of money for closing costs or down payment, so please don’t do that. 401K loans are acceptable and please discuss with your lender if you intend to go this route.
Last, your job could change things too. A few days before closing we will contact your employer to confirm you’re still employed. SO, the simplest advice is to KEEP YOUR JOB. If you have the opportunity to change employers or change positions within your company, please let your lender know first. A change in pay structure, like going from salary to salary plus commission, could affect your chances of getting your loan. Or, if you’re doing a first time buyer program, a raise in income (though a GREAT thing) could put you over income for a first time buyer program, taking away your down payment assistance. It’s best to chat with your lender so you know what your options are before making a job move.
Ultimately, as a lender, we want your loan process to sail as smoothly as possibly. With the right current and rudder to guide you (information above), you should have no problems making it to your homeownership destination!