You’ve finally found “the perfect” home – have it successfully under contract to make it yours – – you need to talk with the lender to start the actual process of getting the mortgage for that particular home. This starts a huge process that most don’t understand the intricate workings of – here are 6 absolute, DO NOT DO THIS after applying for a mortgage, items:
1. Do Not Deposit Cash into Your Bank Accounts Without Talking with Your Lender: Cash is good, right? Not in this case…the reason being is that cash is untraceable. The loan officer and underwriters need to know where your money is coming from. The safe way to deposit cash is to talk with your lender first on how they’d like it handled so it’s documented correctly and less headaches down the road.
2. Do Not Make Any Large Purchases like a New Car or Furniture for Your New Home: I jokingly (sometimes not so jokingly) tell people that after they’ve applied for a mortgage – to not buy groceries if they don’t usually buy groceries…kidding of course however you get the point of it. If you purchase items that will run up your credit card balances or show up on your credit report, this may very well affect your ability to get approved for a mortgage. Keep your head down, keep purchases on the small end of things and keep your eye on the prize of owning a home.
3. Do Not Co-Sign Other Loans for Anyone: This is another potential “ding” on your credit report. If you co-sign for someone, you are obligated to pay that amount off. That may increase your “debt to income” ratio that the lender/underwriters are looking at – which again may affect your ability to get approved.
4. Do Not Change Bank Accounts: The lenders and underwriters really like consistency They need to be able to track your assets and liabilities fairly easy…when you change banks, that makes their job harder…your goal should be to make their job as easy as pie.
5. Do Not Apply for New Credit: This goes along with #2…this again puts a “ding” on your credit report and it looks like you’re “shopping” which can impact that “debt to income” ratio that is ever so important.
6. Do Not Close any Credit Accounts: This one is an interesting one I think…on one hand, if I have all these accounts open – let’s say Target RedCard, WalMart BlueCard and a Macy’s card – I have the ability to run all of those balances up which will affect my “debt to income” ratio. So why wouldn’t the lender want me to close these accounts to decrease the risk of overspending? A major component of your FICO score is your length and depth of credit history (vs. just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts can actually have a negative impact on your ability to be a mortgage. Talk with your lender if you’d like to close these types of accounts to see if they feel that it would be in your best interest.
On the side: Full disclosure is really needed when applying for a mortgage – they’ll need W-2’s from recent years of taxes, bank statements, etc…it may seem like an endless request however remember that the end goal is to get into a home of your own…the loan process is just a short blip in time – again keep your head down and eye on the prize!