Great Ways to Mess Up Your Closing
Updated: May 14, 2019
Finding a new home can be a very exciting time, especially if you're a first time home buyer. What a lot of people don't know, is once you find the home of your dreams and start the financing process, there are a few key things that can really mess up your mortgage approval. Shashank Shekhar at The Balance gives you a great overview of the whole mortgage underwriting approval process, but let's take a look at the things you may do without realizing the effect they can have on your closing.
Applying for a new credit card or auto loan.
Seems pretty harmless, right? Wrong! Within six months of applying for a home loan, you want your credit to stay as consistent as possible. When you apply for a new credit card or auto loan, you'll create an inquiry on your credit report, which can lower your credit score.
You also want to keep your debt-to-income ratio low. Your underwriter will be paying very close attention to this. The higher your debt-to-income ration, the more of a risk you are and the lower your chances of approval. So when that lovely cashier asks if you want to apply for their new shiny credit card, politely decline.
Making big purchases or deposits.
Your lender wants to see steady income and outgo. If your underwriter sees a hefty deposit into your account the month before you apply for a home loan, they may think you're only staying afloat by random deposits from a family member. On the flip side of this, if you decide to drop a few thousand dollars on furniture for your new home, the underwriter may question your responsibility with money. So remember, steady, consistent, responsible! Your lender wants to know, without question, that you'll be able to make your monthly payments so stay away from creating any questionable money movement in your account.
Making a career move before applying for a home loan may hurt your chances of approval.
Your lender needs to you know you can pay your monthly mortgage payment. If you've recently started a new job, there are two potential red flags that may pop up:
You may not have a pay stub to show how much money you'll actually be bringing home. How likely is a lender to loan you a significant amount of money if they don't know how much money you make?
Your lender may wonder if you're a job hopper. Remember, steady and consistent are what lenders are looking for. They want to know they will get there money back.
Paying your bills late.
I think this speaks for itself but let's talk about it anyway. Most lenders use the FICO scoring model when reviewing your credit, so a single late cable bill payment can knock significant points off your credit score. Along with a depleted credit score, if a lender sees you consistently falling behind on your bills, they aren't going to have much faith that you'll pay your mortgage on time.
Taking a big vacation.
We've already mentioned that you want your accounts to have steady income and outgo, so it makes since why you wouldn't want to take a big trip while your loan is in underwriting. This isn't the only reason to avoid vacation while your loan is in underwriting though. It is very common for the underwriter to call and ask for one more month of bank statements or three more pay stubs. These aren't usually things you take on vacation so make sure you're in town to provide the underwriter with any documents they may need at the last minute.