<img height="1" width="1" style="display:none" src="https://www.facebook.com/tr?id=262189827814310&amp;ev=PageView&amp;noscript=1">

Amerifirst blog

Explore our blog for insights on buying, financing, remodeling, and taking care of your home.

Back to all posts

5 Activities to Avoid Between Mortgage Pre-approval and Closing on Your New Home

iStock-946637150This is a guest post by Blair Warner, senior credit consultant and founder of Upgrade My Credit

 

You've just found out you've been pre-approved for a home loan!

 

That's great news! Whether you've found a home you want to buy or you're still out there house shopping, there's something you need to know now that you've secured the financial backing of a lender:  it's important to keep your credit  in good standing from now until closing day. What does that mean, exactly? Follow our tips below to learn more:

 

 

5 Activities to avoid between pre-approval and closing on your home

 

  1. Do not make any major purchases (furniture, car, boat, jewelry, etc.)

    You've been pre-approved for a mortgage and you've found the perfect home after weeks, or even months of searching, and the dreaming begins.  You're getting excited and can’t wait to move in. In the midst of the anticipation, you begin imagining new furniture or appliances that will personalize the house. You're already in that “buying” mode. Besides, you're pleased to have discovered your credit is better than you thought it was. Why not go ahead and buy that 5-piece rattan patio set for your backyard? 

    Don't do it! Making any major purchase at this time takes money or credit, and your mortgage approval was based on a certain set of criteria by your lender such as debt-to-income ratio, cash reserves, assets, etc. Changing those in any way could jeopardize the closing and funding of your new home, especially if you are depleting reserves and savings that are slated to be used for buying your new home.


  2. Do not apply for any new credit -
    (even if it says you are preapproved or “xxx days same as cash”).


    We're bombarded with all kinds of credit opportunities in our society today.  Buy this, buy that. Department stores are notorious for trying to get you to apply for their credit card at check out and “save an extra 20% on your purchase today”.  Credit card companies send enticing letters stating you are pre-approved for a platinum or gold credit card, making it easy to call an 800 number or apply online. The list goes on: cable companies, new cell phone upgrades or calling plans, vacation deals, big box stores cards, etc. 

    REMEMBER: Avoid applying for credit of any kind for the same reason mentioned above. Your mortgage pre-approval was based on a certain credit profile and score. You don’t want to do anything that changes it and that could derail your mortgage loan approval and process.

  3. Do not pay off charges or collections

    This may begin to sound like a broken record, but because your mortgage lender pre-approved you with a particular credit profile and credit score that accompanies your loan application file, you don’t want to do anything that could change it. The slightest change in the wrong direction could change your pre-approval to a declined application, or, at best, delay your closing.

    The way FICO calculates your score, and the way the credit reporting system works is fairly confusing, and unintentional mistakes or changes you may make in the name of credit improvement are not that easy to correct, and could affect your score negatively.  Besides, not all derogatories as they are currently reported are hurting your score or mortgage approval.  (Leave it up to your loan officer and/or credit consultant to advise, if necessary). In fact,
     do not make any changes to your credit profile without talking to your trusted loan officer first.

  4. Do not change bank accounts

    When you applied for a mortgage loan and received your pre-approval, you will remember that you had to provide a lot of different documents, like income documents, proof of employment, list of assets, etc.  One set of documents you had to provide was your bank statements. 

    Most lenders will request your bank statements (checking and savings) for the last two months when you apply for a home mortgage. The main reason is to verify you have the funds needed for a down payment and closing costs. The lender will also want to see that your assets have been sourced and seasoned.

    SOURCED
    means the lender can determine where the money came from.    SEASONED means that the assets have been in your account for a certain length of time.

    If you change bank accounts, you will have to go through the process all over again, which usually means waiting at least 60 days for seasoning. It may even require a letter of explanation. It’s not worth the trouble. Furthermore, your mortgage underwriter could require a new set of bank statements right before closing.

  5. Do not make unusual deposits into your bank accounts

    There are two actions to consider when it comes to your bank accounts, withdrawals, and deposits. First, you don’t want to make any unusual deposits or withdrawals, especially large ones. Large deposits other than from normal income will more than likely be required to be sourced, and depending on where it came from, could put a wrench in the process.

    What about cash gifts, you may ask? It's common for family or friends to want to help first-time homebuyers, especially young couples. Some loan programs allow for down-payment gifts from family members. If a large cash gift is given to you, it's best to disclose it to your loan officer before you deposit it into your account. They will give you directions on how to proceed.  To be safe, anything over $200 that is not a part of your normal monthly income should be mentioned to your loan officer.


    Secondly, a large withdrawal could cause the underwriter to question what it was for, like one of the examples of large purchases mentioned above. Large withdrawals could also significantly decrease the amount of cash reserves your pre-approval was based on, and throw things off when it comes time to proceed toward closing.

You may be feeling a little overwhelmed with all the do’s and don’ts mentioned above. But don’t let it stress you. In general, all the above could be captioned in a single phrase: 

Don’t do anything with your credit profile or finances that will cause a major change, and, if in doubt, ask your trusted advisors like your mortgage loan officer and credit consultant for their guidance.

 

Read our blog: Down Payment Assistance: How to Get Help Buying Your First Home

 

Wondering if now's a good time to get pre-approved? Contact Amerifirst Home Mortgage by clicking the button below. They're happy to answer any questions you have about the home buying process.  

 

Let's Talk!

 

Author bio: Blair Warner is the founder and Sr. Credit Consultant of Upgrade My Credit. After years in the mortgage business, he has become one of the foremost credit experts and debt counselors in the Dallas/Fort Worth area since 2006. He is passionate about helping people manage their credit and debt rather than letting it manage them. As a father of four and with a love for teaching, Blair not only advises, but guides and educates consumers on how to lead a more fulfilling financial life.

 

Related Posts

Tips to Save on Your Homeowner's Insurance

Home insurance premiums can make up a big chunk of the annual expenses of a family.  Insurance rates change every year, and in many cases the premiums go up. We all know that there are several variables that determine which banks will lend us money, how much insurance companies will charge us for coverage, and what qualifies a buyer. There are four main variables that may affect your home insurance rate:

Home Maintenance Tips for Winter

Sure, spring cleaning sounds great.  However, in reality, tackling a long home maintenance checklist all at once can be overwhelming. Rather than letting it all add up, what if you tackled home maintenance a little each season? Here are some ideas for taking care of your home during the winter months.

Tips for Paying Off Your Mortgage Faster

There are several ways to pay off your mortgage faster and save on interest payments. Even better, not all methods require spending a lot of extra money! Take a look at the list below: Make extra principal payments.  You can pay extra money toward your mortgage balance each month or make a larger, lump sum payment on your principal each year. This reduces the amount due on the mortgage as well as reducing the amount of interest that will accrue. Extra money can also be added to the principal payment from bonuses, gifts, savings and extra earnings. Just remember to make a note on the check for the money to go towards the principal! Make one extra mortgage payment per year. One of the easiest ways to make an extra payment each year is to pay half your mortgage payment every other week instead of paying the full amount once a month, otherwise known as “bi-weekly payments.” With these payments, an extra payment is made so that the total number of payments that one makes adds up to 13 payments in a year rather than the 12 that would have been made with monthly payments. This adds up to significant interest savings over the duration of a mortgage. You also want to make sure that if your lender accepts this kind of payment they will not charge you a prepayment penalty. Also verify that the bi-weekly payments are being applied to the principal amount and not the interest. Otherwise, you won't notice the savings. Reduce your balance with a lump-sum payment. Have you inherited money, earned a bonus or commission, or sold a large item? You could apply that amount to your mortgage’s principal balance. Another option is any time you have a month where you have that third paycheck, apply that to the principal on your mortgage. This will happen twice a year, adding an extra principal payment to your mortgage loan. While paying down a large debt is nice, it's not a requirement. Consider making sure you have enough to work toward other financial goals, such as an emergency fund, before paying more on your mortgage. However, there are many options you can explore that best fit your budget. You can learn more about buying your first home with our Get Mortgage Ready Guide below.

icon_footer_phone-01

Call us

800.466.5626

icon_footer_laptop-01

Get started

Apply online today