What Not to Do During the Loan Process
You are ready to buy a home and the time has come to apply for a mortgage. As you may know, the loan process is one of the most important steps you will take when purchasing your new home. Applying for a mortgage loan does not have to be stressful. For a smooth loan process, we have provided some tips of what NOT to do.
1. Apply for other loans: All loans (personal, student, and auto) will increase your debt and can affect your chances of receiving a mortgage loan. A favorable debt-to-income ratio, or DTI, is one of the most important requirements needed to qualify for a mortgage loan. Mortgage Loan Originators consider the amount of debt you owe and compare this to your income. Increasing your DTI will limit your chances of pre-qualification. It is important to avoid taking out loans close to the time you are applying for your mortgage.
2. Change your marital status: It is important that both your lender and title company are aware of changes in your marital status. The accuracy of your loan documents will affect how you hold title.
3. Miss credit card payments, auto payments, etc.: It is important to note that lenders will use your credit score as a risk-assessment tool. When your credit score is high, you are a lower risk for the borrower and vice versa. Your payment history accounts for 35% of your credit, so avoid making late payments on your current accounts. Depending on the circumstances, one late payment can drop your credit score by more than 50 points.
4. Change jobs: Change of employment may result in a denial of your loan, especially if the change is to a lower-paying position or if the new job is in a different field than your previous position. Even if you have received approval earlier in the loan process, your employment maybe re-verified before the lender funds your loan.
5. Make large deposits or withdraws: During the loan process, you will need to provide your recent bank statements. Any large deposits or withdrawals that appear out of the ordinary to your Mortgage Loan Originator may cause concern. Your Loan Originator will discuss these to avoid conflict with processing your application. If you receive a large gift from a family member or friend for your down payment, it is important that you document these gifts. Your Mortgage Loan Originator will discuss this with you when you apply.
6. Make any large credit purchases: Some first-time homebuyers will spend thousands of dollars on furniture and household items before their loan is approved. Avoid these kinds of purchases as these may cause a spike in your debt-to-income ratio. Your credit score is affected by how much debt you owe. A spike in debt can raise a red flag for your Mortgage Loan Originator and may affect your loan approval. Play it safe and make any major purchases after you close on the mortgage.
If you need a mortgage loan to buy a home, it is important to follow these tips and avoid making any moves that could prevent you from qualifying for a mortgage loan. Being prepared for closing day will ensure that you will experience less stress during the homebuying process.