You’ve started the process to buying a home. You’ve met your lender and have been preapproved. You’ve picked a house and the seller has accepted your offer. You’re well on your way to living in your new home – there can’t be many more hurdles, right?
Often, this is true. However, when financial situations change between the time you are pre-approved for a loan and the time you officially close on your loan, the path to buying a home could be slowed or completely derailed. That is why it is important to make sure there are no major changes to your finances during this time.
So, what kind of activities should you avoid between your accepted offer on a house and your loan closing?
Avoid Applying for Other Loans
You should avoid applying for other loans (including payday loans), opening a new line of credit (such as a credit card), or even cosigning on a loan. All these activities will show up on your credit report. Your lender will see the increase in debt and required monthly payments. They could determine that your ability to make payments on your original mortgage loan request has changed.
The above activities will affect your credit score. They also require someone to run a credit check on you, and that action in itself can even affect your credit score. Because your credit score determines your mortgage rate or if you are eligible for a loan, it’s best to save these changes for later.
Avoid Late Payments
This will both improve your credit score and provide important evidence to your lender that you are able to make payments. Consider making automatic payments.
Avoid Purchasing Big-Ticket Items.
You should avoid actions that could significantly decrease the cash or assets you have under your name. This means waiting to purchase big-ticket items such as a car, boat, or furniture until after you have completely closed on your mortgage loan.
Avoiding Closing Lines of Credit and Making Large Cash Deposits
You might think closing a credit card or depositing a large amount of cash would work in your favor. However, closing a line of credit such as a credit card – you guessed it – affects your credit score. Even if you don’t use the credit card, evidence that it exists, and you haven’t used it irresponsibly can benefit you.
On the other hand, a large, out of the ordinary cash deposit might look suspicious. It will require a lender to do research into whether the funds are a cash loan provided by a friend or if the unexpected increase is even legitimate.
Avoid Changing Your Job
Quitting or changing jobs will likely mean a change in income. For better or worse, the change will impact your mortgage application. Save this life change for after you’ve closed on the loan, or at minimum, reach out to your lender to discuss how this change could affect your loan.
Avoid Other Big Financial Changes
Now is not the time to switch banks. If this happens, your lender will have to delay the mortgage process so that they can gather the most current documentation from your new bank.
Keep Your Lender Informed of Inevitable Life Changes
For instance, if you plan to get married during the mortgage process, make sure your lender knows. Why? Your spouse will have to sign the mortgage, even if they are not part of the loan.
If you plan to legally change your name, you should also wait until after you have closed on the loan. The discrepancy in names on different documents could slow down the process.
Communicate with your Lender or Broker
Keep the lines of communication open. Prompt responses and accurate information will keep things moving forward.
Although the above may seem like a lot, it comes down to simply avoiding any major financial changes until after you’ve closed on your loan. If you’re ever unsure, ask your lender before acting.
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