The homebuying process is full of joys and woes. With the closing table in sight, there are still some things to keep in mind while playing the waiting game. Knowing the triggers that may impact the loan process may help you tread cautiously on your path to homeownership.
Even if your credit is stellar, certain actions could hinder your approval. Here are some red flags to avoid that may cause lenders to change their minds about financing your new home. Heed my advice, because you don’t want to lose your dream home over something minuscule.
- Be accurate
It goes without saying that when you begin the loan process, you’ll be submitting a boatload of paperwork. Lenders will be requesting personal documentation anywhere from 1-3 years ago, so it’s very important that you keep old tax records, pay stubs, and other pertinent information.
When filling out paperwork, it's simply not worth it to be less than forthcoming about your income or your debts. The truth will be discovered throughout the process thanks to background and/or credit checks.
Keep important documents and forms required by your lender easily accessible. Requesting replacements from government entities and service providers because you do not have access to your copies can add unwanted time that will delay approval and closing.
- Cease the job hunt
Be very careful about switching jobs and/or losing your current job. If you’ve become unemployed and accept a job offer, some lenders require you to be at your current place of employment for at least two months, in addition to being in the same industry for two years. For instance, if you held a position as a teacher and switched careers to becoming a policeman, in some instances, you would have to be a policeman for two years. Conversely, if you went to teach at a different school, you would only have to be employed at the new location for two months to be approved.
Also, things such as accepting a new job or moving from a salaried position to a commission-based job may impact your ability to close a loan. Demonstrating financial stability to your lender is key behavior when it comes to proving credit-worthiness.
- Don’t incur new debt
While switching banks for lower interest rates or co-signing for a child’s student loan may seem like something you would normally do without hesitation, I’d caution you to put some more thought into it as it may affect your mortgage approval more than you’d think.
Opening new credit cards will increase inquiries into your credit and ultimately could affect your credit score. Also, running up your card balance is a quick way to lower your credit score. Follow your normal spending pattern for existing credit cards, and make any changes after the loan closes.
The same goes for purchasing high-value items like furniture and appliances. I know it seems tempting to charge up the card to furnish your new home, but increasing your debt-to-income ratio is not an attractive quality your lender seeks in a borrower.
- Pay bills on time
Whether you’re applying for a home or not, you should always pay your bills on time. Many creditors charge an obscene amount for late payments in addition to increasing interest rates that are just not worth it.
Late payments or excessive credit card use may cause your accountability to come into question. During the approval process, lenders want to validate your level of responsibility and the likelihood of default.
- Account for every penny
During the loan process, your lender will require you to provide bank statements for a designated period of time. Unusually large deposits, transfers, or withdrawals will raise questions and require explanation–so keep appropriate documentation. Depending on the type of loan, funds for down payment can be gifted from mom or dad, but be sure to ask in advance.
Remember to save money for additional expenses, such as closing costs, and consult with your lender in-advance if someone else is paying for charges associated with closing.