Top 10 Things Not To Do When Applying for a Mortgage
- Bianca "Bee" France
- July 22, 2024
- 11:47 pm
- 0 comments
Sometimes as homebuyers, we don’t know the top things not to do when applying for a mortgage, and that’s okay—that’s why I’m here. I’m here to guide you through your mortgage transaction! In this guide, I’ve compiled a list of things that could cause an issue with your transaction.
When lenders review your application, they like consistency in your finances.
Lenders like consistency in your finances because it provides them with a clear and reliable picture of your financial stability and ability to repay the loan. Consistent financial behavior demonstrates responsible money management and reduces the perceived risk for the lender. Here are some key reasons why financial consistency is important.
Here’s my list of the top 10 things not to do when applying for a mortgage:
1. Don’t make major purchases like appliances, furniture, vehicles, and the like.
Making large purchases before your mortgage is finalized can significantly impact your financial profile. These expenses can deplete your savings, increase your debt-to-income ratio, and potentially affect your credit score. Lenders look at your financial stability, and sudden major expenses can raise red flags, potentially jeopardizing your loan approval.
2. Don’t change or quit your job.
Stability is key when applying for a mortgage. Lenders prefer borrowers who have a steady income and employment history. Changing or quitting your job can make you appear risky to lenders. Even if you secure a higher-paying job, the transition period can cause concerns about your ability to maintain a consistent income. If a job change is necessary, consult your mortgage professional to understand how it might affect your application.
3. Consult your mortgage professional before withdrawing, depositing, or moving large amounts of money in or out of your bank account.
Lenders closely scrutinize your bank statements to ensure you have the necessary funds for a down payment and closing costs. Large, unexplained transactions can raise questions and cause delays. Always consult with your mortgage professional before making significant financial moves to ensure they don’t negatively impact your loan application.
4. Don’t pay off debts or collections unless you’re instructed to do so by a mortgage professional.
While paying off debts might seem like a good idea, it’s important to follow your mortgage professional’s advice. Sometimes paying off certain debts can alter your credit score or debt-to-income ratio in unexpected ways. Your mortgage professional can guide you on which debts, if any, should be paid off to improve your chances of loan approval.
5. Avoid using cash for the Earnest Money Deposit (EMD). Using cash is hard to verify and could delay your closing date.
Lenders require a clear paper trail to verify the source of your funds. Using cash for your Earnest Money Deposit can complicate this process since it’s difficult to document. To avoid delays, use a check or electronic transfer, which can be easily tracked and verified.
6. Don’t have your credit report pulled too many times as this can hurt your credit score.
Each time your credit report is pulled, it can slightly lower your credit score. Multiple inquiries in a short period can have a significant impact, making you appear riskier to lenders. To avoid this, limit the number of credit applications and inquiries during the mortgage application process.
7. Don’t close any credit accounts.
Closing credit accounts can reduce your available credit and impact your credit utilization ratio, which can lower your credit score. Keep your accounts open to maintain your credit profile until after your mortgage closes.
8. Don’t co-sign loans for others.
Co-signing for someone else’s loan means you’re equally responsible for that debt. This additional liability can increase your debt-to-income ratio and potentially disqualify you from getting the best mortgage terms.
9. Don’t neglect your credit monitoring.
It's important to keep an eye on your credit report throughout the mortgage application process. Unexpected changes or errors can affect your credit score and your loan approval. Regularly checking your credit report can help you catch and address any issues promptly.
10. Don’t switch banks or open new bank accounts.
Switching banks or opening new accounts can disrupt the continuity of your financial records, which lenders need to see to verify your financial stability. Keep your current accounts steady and avoid opening new ones until after your mortgage has been finalized.
Conclusion
Applying for a mortgage can be a complex process, but knowing the top things not to do when applying for a mortgage can help you navigate it smoothly. Consistency and transparency in your financial activities are crucial. Always consult with your mortgage professional before making any significant financial decisions. By steering clear of these common pitfalls, you'll boost your chances of getting a mortgage that truly fits your needs, and you'll be well on your way to achieving your dream of homeownership with confidence.
About the author
Bianca France, or Bee as everyone calls her, is a top-notch Mortgage Loan Originator at CPF Mortgage, NMLS 2138665. She's got tons of experience and loads of 5-star reviews. Bee is all about giving her clients the best mortgage deals out there. She’s dedicated to finding the best rates and loves making home-buying easy. Contact Bee for all your home loan needs.
