You likely know the list of things to do and not to do before applying for a mortgage, but there’s also certain actions regarding your credit score, finances and employment that should wait until after closing day. Avoid making these mistakes between your application and closing to keep your loan on track.
Image courtesy of Danilo Rizzuti at FreeDigitalPhotos.net
Quit or Change Jobs
Your employment status is checked during the processing of your loan and will be checked again before your loan closes. Your financing is figured on your, and possibly a co-borrower’s, income to determine the purchase amount you can finance. If you expect your employment to change at any point prior to or during the loan process, make it known to your mortgage lender to avoid any surprises pre-closing.
Switch from a Salaried/Hourly Job to Commission-Based
Your mortgage lender uses your income to determine affordability of a new home alongside your other debts. A debt-to-income ratio is relatively uncomplicated to determine if you have a steady, predictable income. Borrowers who have a commissioned income often need to provide an extended history of their income to prove a sufficient commission average over time.
Open a New Credit Card
Opening a new credit card will lead to another inquiry on your report and could potentially drop your credit score. The interest rate you receive from your lender could be affected if your score drops and you haven't locked yet or could knock you out of qualifying range altogether.
Forget to Pay Your Bills
A late payment hit on your credit report could devastate your closing. Because payment history accounts for approximately one third of your credit score, a 30-day late payment could clip 60-100 points from your score. Now is the time to make sure all of your financial ducks are in a row.
Make a Large Purchase on a Credit Card
You've been approved to buy a house, so it's ok to finance some furniture on your credit card, right? Wrong. Making a major purchase on any type of credit line will affect your debt-to-income ratio. Talk to your mortgage banker before racking up any large balances on your credit card prior to closing.
Pay Off Old Collections
During the pre-approval or loan commitment stage, your lender will pull your credit report. If you have any outstanding bills that went to collections, your lender will make sure you are aware of those. But before you pull out your checkbook to pay them off, wait for the go-ahead from your lender.
Paying an old bill that went to collections brings that discrepancy to the present and can drop your score significantly. During the underwriting process, your bill in collections will most likely become a pending condition to close.
Make Random, Undocumented Deposits into Your Bank Account
During the verification process of your loan, your lender will ask you for the past 60 days of your bank statements. Underwriters will take another look at your assets and bank records prior to closing. You will have to explain any unusual deposits and provide documentation for where the extra cash came from.
If you are unsure about making a financial decision that could affect your home loan, talk to your mortgage banker to avoid any mishaps before closing day. For more information about home buying and financing, download our free Mortgage 101 Handbook.