This is a guest post by Blair Warner, Credit Specialist at Upgrademycredit.com
While it can be true that "home is where your heart is” and it doesn’t matter where you are living in order to call a place home, actually buying your own house in which to live and be the place where ones heart is, is one of the most exciting things in life. You are about to be involved in one of the oldest activities of all history, buying or building a house to call home. The flip side is that it can also be one of the most daunting things you do. Here are some tips for making the process between getting pre-approved for a mortgage and actually closing on your new home. Learn what mortgage pre-approval is here.
5 Activities To Avoid Between Pre-Approval and Closing on Your New Home
- Do not make any major purchase like furniture, car, boat, jewelry, etc.
You've been pre-approved for a mortgage, or you have found the prefect home after weeks, or even months of searching, and the dreaming begins. It’s natural. You are 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 are already in that “buying” mode. Besides, your are pleased to have discovered your credit is better than you thought it was. Why not…, right? Wrong. 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.
- Do not apply for any new credit (even if it says you are preapproved or “xxx days same as cash”).
We are 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 we are pre-approved for such and such platinum or gold credit card, making it easy to just call an 800 number or go online to apply. The list goes on: cable companies; new cell phone upgrades or calling plans; vacation adverts; Amazon Prime’s credit card, etc. Even the stores that offer "xxx days same as cash" deals could check your credit. Avoid applying for credit of any kinds whatsoever 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 could derail your mortgage loan approval and process.
- 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 a pre-approval to a declined, or, at best, delay 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 effect 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 at all without talking to your trusted advisors.
- Do not change bank accounts
When you applied for a mortgage loan and received your pre-approva,l 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 mortgage to buy a home. 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.
- Do not make unusual deposits into your bank accounts
There are two actions to consider pertaining to your bank accounts, withdrawals and deposits. 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 is common for family or friends to want to help first time home buyers, especially young couples. Some loan programs allow for down-payment gifts from family members. If a large cash gift is given to you it is best to disclose it to your loan officer. In fact, if that is going to be the case, talk to your loan officer first. And it is probably a good idea to ask her beforehand what is considered an unusual deposit period, so you will be aware and not make any mistakes. To be safe, anything over $200 that is not a part of your normal monthly income should be mentioned to her.
Likewise, 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. 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/or credit consultant.
Author bio: Blair Warner is the founder and Sr. Credit Consultant of Upgrade My Credit. After years in the mortgage business, Blair 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 fullfilling financial life.