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Pre Approval Mistakes You Can't Afford to Make

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Real Estate Technology with Imagine WOW! Digital Marketing Agency

PreApproval Mistakes You Can't Afford to Make

You have spent the last several weeks scouring the city for your dream home. You wrote an offer and ‘hooray’, it was accepted. You were pre-approved for a loan by your lender a month ago, but understand that your next step is to complete the mortgage application process.

When you initially spoke with your loan officer everything from credit to income looked good. Even though you feel nothing has changed financially, you worry that any teeny tiny discrepancy could result in loan denial.

So how can you avoid the stress of the “unknown deal killer?” Below is a list of pre approval mistakes you can't afford to make once you have spoken with a loan officer and been preapproved for a home loan.

1. No New Credit

  • Any new credit inquiries will necessitate an explanation as to whether or not any new credit resulted from the inquiry.
  • Any new trade lines could affect your ability to qualify. The new trade line and payment will now need to be counted in your debt to income ratio.
  • Running up credit card debt will lead to higher minimum payments and the result could be a reduction in the amount you qualify for or a denial altogether.

2. No Large Purchase

  • Don’t purchase a new car
  • Don’t purchase new furniture
  • Why? Extra Cash is Good, Depleting Your Savings is Bad! Underwriters look very favorably on a borrower with extra cash reserves. Depleting those reserves could affect your preapproval so discuss purchases with your lender once your offer to purchase is accepted.

3. Make Timely Payments

  • There is a very strong likelihood that the credit report pulled when issuing your pre approval letter will not be the final credit report pulled during your purchase transaction.
  • If you have a debt-to-income ratio greater than 40% then a final credit report will be ran before final loan approval. Any changes, even small ones could be the difference between approval and denial.
  • Any missed payments between the time of a prequalification and closing could affect your eligibility due to a reduced credit score.

4. Do Not Change Employment

  • Changing jobs could affect your eligibility and require an updated pre approval process
  • The amount of time you have been at your current job speaks to your stability
  • Changing of pay structure (going from salary or hourly to commission) will affect eligibility. There are many reasons behind this with one being that commissioned employees are treated similar to self-employed borrowers. We will require a 2 year history within that line of work and 2 years tax returns to prove income. Without that, we are more than likely unable to use your new income. The bottom line: Do not make any job alterations without speaking with you lender first!

There are many changes to your financial profile that could affect your loan approval. While the list above cannot possibly encompass all of them, it should act as a general guideline to the top issues we are facing today.

Your best rule of thumb is to just say NO to the temptation of making any financial changes until you have closed on your home. If you are unable to avoid a change that might impact your qualification, notify your lender and your real estate agent immediately. Our goal is to help you eliminate challenges and bypass any potential pitfalls.




Pre Approval Mistakes You Can't Afford to Make was written by Rebekah Radice.

Comments (63)

Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

I will bookmark this post and share it with my clients. Thanks for the post.

Sep 09, 2011 01:57 AM
Tatyana Makarov
Century 21 All Points Realty - South Windsor, CT
Your Greater Hartford Area Realtor

Rebekah, great info. I am surprised how many buyers don't realize it... Some of them go to buy furniture worth of thousands a few weeks before closing.

Thanks again for the great post.

Sep 09, 2011 02:31 AM
Rebekah Radice
Imagine WOW! Digital Marketing Agency - Burbank, CA
Social Media Marketing, Coaching & Training

Bridgette - That's such an important point to get accross.  I try to help clients understand that we are here to help, not hurt them.  If they can trust us with the big and small stuff, hopefully we can overcome an issue before it becomes a deal killer!

Kristine - You would think this is common sense but unfortunately that isn't always the case.  I can't even imagine what those newlyweds must have felt like.  Terrible!

You do have to shake your head and wonder don't you Jon???!

That's a great idea ann!  Just take this post and turn it into a handout for that first meeting with any potential homebuyers.

"The feature machine" -- that's pretty funny John!  I did not know that BM was in your office now.  How exciting!  I'll have to write Dana nad tell her congrats!

Sep 09, 2011 03:07 AM
Cheryl Ritchie
RE/MAX Leading Edge www.GoldenResults.com - Huntingtown, MD
Southern Maryland 301-980-7566
Thus cannot be said enough times! This is going to be a reblog in two seconds for Southern Maryland!
Sep 09, 2011 03:18 AM
Zachary Strong
Coastal Properties Group International - Belleair, FL
Adventure-Clearwater to St. Pete, Florida Real Est

Great Post Rebekah! I think I might re-post if you don't mind!!

Sep 09, 2011 03:43 AM
Don MacLean
New England Real Estate Center Inc. - Easton, MA
Realtor-Homes for Sale- Easton, Mass 02356

Rebekah, Education is the key and that's exactly what this is.

Can we shrink it to the size of a credit card so people will pull it out when they go to make that large purchase.....................and then don't lol

Enjoy the day

Sep 09, 2011 04:07 AM
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Ohhhhhh Rebekah!  Getting this point across to homebuyers is SO VERY Important!  Being a lender myself, I preach and preach and preach this.  Remind. Remind. Remind.  But yet, what does a young client of mine do just days before his closing??  Went and bought a truck.  WHAT????  We talked about this right?  Yes.  I told you no inquiries.  No purchases, right?  Yes. I told you multiple times, right??  Yes.   Then why did you buy a truck?  I wanted it. 

I was speechless.   Long story short ... the purchase changed his credit and the house purchase is now on hold until I can accomplish a credit miracle.   Guess he got what he wanted??? 

Gene

Sep 09, 2011 04:07 AM
Stephanie Arnett
Mississippi Magnolia - Starkville, MS
Forbes | Inman | BossBabe | Newsweek | Tom Ferry

Awesome, Awesome, AWESOME post!!  Thanks

Sep 09, 2011 04:19 AM
David A. Weaver
Peoples Bank & Trust Co. - Scottsdale, AZ
24 years helping folks finance their dreams.

Great points every one Rebekah.  I would add one more to the list.  Don't stop saving!!!  In eighteen years in this business I have yet to have a borrower come into the transaction with to much money on hand. 

There is always something to spend it on, even if its the pizza party for your friends who are helping you move.  There is also dumb things like utility deposits, moving boxes and packing materials.  How about that first trip to the grocery to stock up the new pantry.  Extra cash is a good thing. 

If we all keep hammering this into our clients and borrowers maybe just maybe they will listen and actually follow our advice.  Only in a perfect world, but we can dream.

Sep 09, 2011 04:25 AM
Rebekah Radice
Imagine WOW! Digital Marketing Agency - Burbank, CA
Social Media Marketing, Coaching & Training

Cathy - The "go to girl" -- I like it! ;)  And there's the key - not to just get approved, but to stay approved.  Thanks for all of your support as always!!

Tatyana - I know, it always blows my mind too!

Don - I LOVE that idea!  If only we could figure out how to do and then to force them to read it everytime they attemped to take that piece of plastic out of their wallet!

Sep 09, 2011 04:43 AM
Barbara Altieri
Better Homes and Gardens RE Shore and Country Properties - Shelton, CT
REALTOR-Fairfield County CT Homes/Condos For Sale

Rebekah -- This is great advice which cannot be repeated enough times!  Reminds me of recent buyers who after the inspection told me they were going to go furniture and TV shopping....and this after I had warned them early on that they had to put major purchases on hold until after the closing!  I'd like to reblog in a few days.  As I said, this has be repeated and repeated....

Sep 09, 2011 05:03 AM
Deb Espinoza
Stage Presence Homes, San Diego Real Estate - Ramona, CA
GRI, Broker, SRS,ABR ePro, SFR, CNE

Thanks for the post Rebekah. This is something that every loan officer needs to give the buyer in writing at time of pre-approval with a BIG RED warning sign at the top of the sheet. It's a darn shame to work so hard to get someone into an escrow and then have it fall apart because the buyers start going crazy buying stuff. I am still trying to figure out why some buyers feel the need to have a new vehicle with their new house when the house is such a big chunk of change.. furniture and appliances I can understand.. But a new vehicle??!!

Sep 09, 2011 05:22 AM
Linda Edelwich
William Raveis Real Estate - Glastonbury, CT
Serving Glastonbury & Beyond | 218 New London Trnk

Good advise. I totally remember one time when a buyer bought a house full of furniture before a closing, only to have the credit pulled before closing and the new credit card on it! AHHHHH  It caused confusion and delay

Sep 09, 2011 07:05 AM
Maya Swamy
Funds Available - Long Beach, CA
Ph.D. Long Beach, CA - fundsavailable.com

I give all my buyers and borrowers a sheet with this information at the first meeting and again various steps along the way. Yet even my son failed to follow the rules

Sep 09, 2011 09:00 AM
Steve Mangus
not active - Oklahoma City, OK

great post, Rebekah. I talk to people all the time who have stumbled--seems like they just can't wait to buy that new furniture.

Sep 09, 2011 09:11 AM
Pam Hills
Innovative Artistry - Kendall, FL
ASP/IAHSP- Stager Miami, FL, Creative Minds Innovatively At Work

Another terrific post!!  What you mean I can't go shopping or be a domestic goddess??!!  (just teasing)

Sep 09, 2011 11:52 AM
Dave Halpern
Dave Halpern Real Estate Agent, Inc., Louisville, KY (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert

Fantastic information. Every Realtor, Buyer and Loan Officer should have this posted on their wall.

Sep 09, 2011 12:38 PM
Amy Robinson
London Pierce Real Estate - Scottsdale, AZ
Realtor, Scottsdale Arizona Homes For Sale

Rebekah great post!   I think this is a good repost : )  I hope that you have a really great weekend.

Sep 09, 2011 01:28 PM
Jon Kolsky
Kolsky Realty & Management - Long Beach, CA
Licensed California Real Estate Broker

Rebekah- great post as always, I feel the more realtors and lenders communicate the better, great information for anyone that's ready to buy a home.... Hope all is well, have a great day-Jon

Sep 10, 2011 05:07 AM
1~Judi Barrett
Integrity Real Estate Services 116 SE AVE N, Idabel, OK 74745 - Idabel, OK
BS Ed, Integrity Real Estate Services -IDABEL OK

Rebekah, Instant approval as a blog.. if only we could create instant approval for our buyers loans. 

Sep 17, 2011 11:31 AM