Buying a home can be both an exciting adventure and a very nerve-wracking experience. It is especially nerve-wracking in the early stages when home buyers are waiting to see if they actually qualify for the mortgage they need. You can, however, greatly increase your chances of qualifying and reduce a lot of the stress at the same: just avoid the common mistakes and missteps. Read on, then, to discover the 5 things Cold Spring home buyers shouldn’t do after applying for a mortgage.
1. Open or Close Lines of Credit
If you’re a potential home buyer and are applying for a mortgage, you should avoid both opening and closing lines of credit. Yes, you read that right: avoid opening or closing lines of credit. Here’s why . . .
Of course, you should get pre-approved for a mortgage before house hunting. But pre-approval is not a guarantee that you will get the mortgage – you can still be denied. Your lender will check your credit during the pre-approval process and again just before closing. And if the lender discovers anything hinky with your credit during that last check, you may not get the mortgage.
First among the things that can cause you trouble after applying for a mortgage is opening any new lines of credit. The reason is that it can lower your credit score and increase your debt-to-income ratio (DTI) – either or both of which can cause a lender to deny final approval of the mortgage.
And closing lines of credit can have the same final result. Closing a line of credit removes that part of your credit history from your credit report. And that can damage the necessary length of credit for mortgage approval. Experts recommend, then, that you leave the lines of credit open, but just don’t use them till after closing.
2. Max Out Credit Cards
Similarly, you want to avoid maxing out credit/credit cards after applying for a mortgage. In fact, industry pros say that maxing out a credit card is among the worst things you can do before closing.
The reason for this is that the increased debt as compared to your income will result in your qualifying for a smaller mortgage amount. It can also cause you to have a lower credit score, with the result that your loan will cost more.
It isn’t your actual total debt that matters so much. It’s how much you owe relative to your credit limits. For example, if you owe, say, $2,000, but your credit card limit is $2,500, then that card is almost maxed out. And this will likely lead to a reduced credit score. Experts recommend, then, that you keep credit utilization below 30% of your credit limit.
3. Make Large Purchases on Credit
Another related thing Cold Spring home buyers shouldn’t do after applying for a mortgage is to make any large purchase on credit. New debt with the concomitant greater obligations in monthly payments will be detrimental to your debt-to-income ratio (DTI) – one of the main things lenders factor into mortgage eligibility.
It’s a temptation for home buyers, after their offer has been accepted and they are moving toward closing, to go out and buy new furniture and appliances for their new home. But you simply must avoid giving in to this temptation until after closing.
4. Change Jobs
And don’t change jobs after applying for a mortgage. Such a move may benefit your career, but it can endanger your mortgage approval.
Lenders want to be assured that you can repay your mortgage, so they’ll want to see that you have steady employment and a stable income. So if you were pre-approved on the basis of your current job and income, a change before closing could harm your mortgage approval (at least the amount) and delay closing.
Lenders typically want to see a record of at least two consecutive years of steady employment and income. But if you change jobs after applying for a mortgage and before closing, you will break that two-year steady employment record.
5. Move Money Around
Also, after applying for a mortgage, you shouldn’t move money around. This may not seem like a big deal, but it matters to your lender.
Large withdrawals from and even deposits into your bank account or asset holdings will be a red flag for your lender. They may assume that you’ve taken out a loan and will then dig again into your debt-to-income ratio.
Of course, this doesn’t apply to transparent deposits such as a job bonus or income tax refund. But something like a large monetary gift or transfer from a friend or family member will send up a red flag.
Don’t Take Chances After Applying for a Mortgage
These are the 5 most important things to avoid doing after applying for a mortgage, but there are many other things that can also endanger your mortgage eligibility and/or delay closing. Don’t take any chances here. Be sure to work closely with an experienced Cold Spring agent who can guide you through the whole process and help you avoid the pitfalls. So if you’re a Cold Spring home buyers and want to be sure everything goes smoothly after applying for a mortgage, contact us today at (914) 407-3322.