After all the thought, planning and budget work, you are ready to talk to a mortgage lender. Your lender,will take a look at your credit score, income, debt ratios and then determine the loan amount that you would qualify for. Whew! that is over…not so quick. You were pre approved, that is not final approval. Any thing that you do to change your financial situation could cause you not to get final approval. Here are some of the things that can affect your final approval.
Don’t do anything that will cause your credit rating to change. That includes buying furniture, a new car, or a boat. If you find yourself in a situation that you have to buy something, talk to your loan officer immediately to find out the best way to handle it. Until you have closed on your loan, nothing is secure.
New payments are going to affect your monthly debt to income ratios (and residual income on a VA loan ), and not in a good way. Hard inquiries on your credit report could also lower your credit score. That might hurt your interest rate if you haven’t locked or even knock you out of qualifying range all together.
Shuffle Dollars and Cents
Lenders will want your most recent bank statement as part of the pre-approval process. Then again, during the underwriting process. Your lender will want to see everything again, along with W2′s, income tax returns and much more to make sure that nothing has changed. Make a file and keep everything in it. Don’t be surprised if your lender wants to see things multiple times. You will have to explain any unusual deposits or withdrawals. Lenders will require clear documentation and a paper trail if you’re putting gift funds toward a down payment or closing costs. Undocumented cash is going to be a huge red flag and they will want an explanation.
Having a late payment hit your credit report before closing can devastate your deal. Payment history comprises about a third of your credit score. One late payment can take 60 to 110 points from your credit score. If that 30-day late is a mortgage or rent payment, some lenders will boot your application altogether. Many will require at least 12 consecutive months of on-time payments to qualify for a home loan.
Co-Sign on a Loan
Co-signing a loan is never a good idea, but it’s especially risky during the mortgage lending process. It means you’re financially liable for someone else’s debt. Lenders will look at it as your obligation and factor it in to your debt load. Adding one more debt to the list could stretch too thin your debt-to-income ratio and assets.
This is not the time to change jobs. Lenders like to see employment history. That you are stable. It is not a good idea to open your own business, or go from a salary to commission.
This is the advice I give everyone. Once you get your pre approval, don’t do anything different from what you have been doing. Your approval was based on your circumstance then. The lender can pull out at any moment and your dream of owning a home will be gone.
As always, if I can help you or someone you know buy or sell a home let me know!