5 Worst Things to do during the Loan Process
Posted by Eric Skates on
THE 5 WORST THINGS YOU CAN DO BEFORE BUYING A HOME
En Espanol
It may sound dramatic, but that's because it is.
Signing a contract on the right home can turn even the most stoic shopper into a bit of a dreamer. From paint colors to planting a garden, picturing yourself in a home is critical for many buyers. Remember that getting preapproved for a mortgage and even under contract, isn't a guarantee. That prefix is there for a reason. Loan preapproval is not loan approval.
You'll have more hurdles to clear before a lender legally commits to funding your home. Buyers who don't know any better can inadvertently add obstacles to that path. Or even kill the entire deal between contract and closing day. Some missteps can be costlier than others. Here's a look at five of the worst things you can do before buying a home.
1. Go Credit Crazy
Don't buy a truckload of furniture until after your loan closes. Avoid obtaining credit for any major expense, such as a car, boat or, yes, a new bedroom set.
Be careful with even minor expenses. If you absolutely need to obtain new credit or accrue debt before closing, talk with your loan officer as soon as possible. New payments are going to affect your monthly debt to income (DTI) ratio (and residual income on a VA loan), and not in a good way. Try to avoid making credit based purchases.
2. Shuffle Dollars and Cents
Lenders will scour your most recent bank statement as part of the preapproval process, and they'll take another look at your assets and bank records during the underwriting process.
You'll need to explain any unusual deposits or withdrawals. Lenders will require clear documentation and a paper trail if you're putting gift funds toward a down payment or closing costs. Remember: Stuffing a wad of undocumented cash into your account is going to raise some red flags.
3. Get Behind on Bills
Having a late payment hit your credit report before closing can devastate your deal. Payment history comprises about a third of your credit score. One solitary 30day late payment can clip anywhere 60 to 110 points from your credit score. Maybe not a huge deal if you had an 800 score, right?
Possibly, but if that 30day late blemish is a mortgage or rent payment, some lenders will boot your application altogether. Many will require at least 12 consecutive months of on time payments to qualify for a home loan.
4. Co-Sign on a Loan
Co-signing a loan is arguably a bad financial move whenever you make it. But, it's especially risky during the mortgage lending process. It means you're financially liable for someone else's debt.
Lenders will still need to factor that new monthly obligation into your overall affordability profile. Adding one more debt to the list could stretch your debt to income ratio and assets.
5. Changes in Employment