This title might be a little misleading. It’s not just applying for a mortgage that’s important. During the entire home buying transaction, from application to closing, your motto should be “Caution is Critical“. For instance, I’m sure you are aware that the lender will check your credit before processing your mortgage application. Did you also know that they check again right before you close?
I’ve run into several instances where a client made an innocent mistake just before closing. Often the transaction can be salvaged, but not always.
Intentional or not a financial misstep, even for a period of 2 or 3 months BEFORE you buy a home, can be a deal breaker. When you submit your bank account information, a lender will look at several months of documentation. Be aware that every large deposit that is not explained by a pay stub, will be scrutinized. Know where it came from and be prepared to prove it.
There are a few rules of thumb as you move through the mortgage and home buying process. You should really consider these to be commandments, but I thought that sounded a bit harsh.
- DO submit to your lender, every requested piece of paperwork and do it FAST! This isn’t a wish list. If the lender has asked you for it, it is required. Lenders also have higher powers to answer to. Don’t think it doesn’t matter if you leave “one little thing” out, it will be noticed.
- DO Remember that the initial list of required paperwork is not the final list. During the mortgage process, your lender will very likely need updated documentation or additional information. Again, speed is crucial.
- DO know exactly where your down payment is coming from. If any of your downpayment money is borrowed, say from a parent or a sibling, you will need to source it with printed documentation and so will the person or persons from whom you are borrowing.
- DO pay all your bills on time! Even one late payment can alter your credit score.
- DO keep your lender informed of major life events i.e. marriage, address change, employment developments. It may feel like a personal detail to you, but it could require a modification in the terms of your loan.
- DO be aware of your purchase and sales contract deadlines, and make sure your lender is also acquainted with them.
- DON’T quit your job. This should go without saying but… well it doesn’t. This happens more than you might think.
- DON’T apply for other loans or open new credit of any kind. This will ding your score and even if you don’t actually use it, the added amount of available credit will affect your qualifications. By altering your credit score you risk losing that low mortgage interest rate you were hoping for.
- DON’T close any existing accounts. This may seem counterintuitive but any change in available credit will have a negative affect on your ratios and credit score.
- DON’T buy stuff! We know you’ll want to. New furniture, appliances, a new car, a boat to store in that new garage. Don’t do it. This will result in a giant red flag. When a mortgage processor or underwriter red-flags a loan, use of credit cards is often the biggest offender. We’ll explain exactly why.
Why You Should Avoid Using Credit Cards When Shopping for a House
If you’re looking for a new home, you probably already know that a mortgage lender will consider your credit score, percentage of available credit used and debt-to-income (DTI) ratio. If your score is too low or your credit utilization or DTI ratio is too high, the lender may charge you a high interest rate or reject your loan application altogether.
Buyers often run into trouble because they don’t understand a key fact about how mortgage lenders vet candidates. A lender checks a borrower’s credit when an application is submitted, and again shortly before closing. If a borrower uses credit cards to buy furniture and appliances or to pay for moving costs, the person’s credit score, utilization ratio and DTI ratio may rise enough to cause the lender to raise the interest rate or decide not to grant a mortgage at all.
How to Protect Your Credit and Get a Mortgage
While you’re in the process of house hunting, it’s important to keep your credit in the best shape it can be and to avoid using credit cards as much as possible. If you normally use credit cards for food, clothing and entertainment, don’t. Use cash or a debit card, or don’t buy certain things at all. If you must make an important purchase, ask yourself if you can live without it until after you’ve closed on your home.
If you receive a letter inviting you to apply for a new credit card with a low introductory rate or rewards, it can be tempting, but you shouldn’t apply while you’re looking for a new home. Too many hard inquiries in a short period of time can hurt your credit score. You shouldn’t apply for an auto loan while house hunting for the same reason.
Make Sure You Have Enough Savings
You’ll have to save money for a down payment, but you shouldn’t put all your savings toward that. If you do, you’ll be left with no cushion to deal with any unexpected bills for things such as medical treatments or car repairs. You also won’t have funds readily available to buy furniture and appliances before you move into your new house. That means you may be tempted or forced to use credit cards, which may jeopardize your ability to obtain a mortgage.
Don’t Lose out on Your Dream Home
Even if your mortgage application has been approved, that doesn’t mean the decision is final. Remember, the lender will check your credit again before you close on the house. A sudden rise in credit card balances and a higher utilization ratio and DTI ratio could cause the lender to change its decision and to reject your mortgage application. Set aside money for any planned or unexpected expenses you may encounter so you can avoid using credit cards as much as possible until you’ve closed on your new house.
This article is intended for informational purposes only and should not be construed as professional or legal advice. Some portion of this article has been Reprinted with permission from RISMedia. ©2020. All rights reserved.
For more information, Call or Text: 602-999-0952
eMail: golfarizona@cox.net
Bill Salvatore / Arizona Elite Properties
Your Valley Property Team
Residential Sales, Marketing, and Property Management
Founder: AZVHV Arizona Veterans Helping Veterans
Recipient: East Valley Tribune’s: Best Gilbert Realtor
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