So you have just applied for a mortgage and are well on your way to being pre-approved to buy your first home so let's go out and buy some expensive furniture for your new home, right? Not so fast! The following 6 'Don'ts' can cause delays and possibly prevent you from getting your mortgage:
- Don’t deposit large amounts of cash into your bank accounts. Lenders need to know where your money comes from and cash is not really traceable. Small, explainable deposits are fine, but getting $10,000 from your parents as a gift in cash is not. Discuss the proper way to track your assets with your loan officer and the proper way to handle a gift of cash.
- Don’t make any large purchases like a new car or a bunch of new furniture. New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher ratios…higher ratios make for riskier loans…and sometimes qualified borrowers are no longer qualifying.
- Don’t co-sign other loans for anyone. When you co-sign, you are obligated. With that obligation comes higher ratios, as well. Even if you swear you won’t be making the payments, the lender will be counting the payment against you.
- Don’t change bank accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is a consistency of accounts. Frankly, before you even transfer money between accounts, talk to your loan officer.
- Don’t apply for new credit. It doesn’t matter whether it’s a new credit card or a new car, when you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.
- Don’t close any credit accounts. Many clients have erroneously believed that having less available credit makes them less risky and more approvable. Wrong. A major component of your score is your length and depth credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both those determinants of your score.
The best advice we can give is to fully disclose and discuss your plans with your loan officer before you do anything financial in nature. If you are pre-approved for a mortgage, the pre-approval was based on your current financial picture. Any blip in income, assets, or credit should be reviewed and executed in a way to keep your application in the most positive light.