The home-buying process can be a long one. Once you have an accepted offer, you’ll likely be excitedly counting down the days until you can move in and start your life as a homeowner. You might be preapproved for a mortgage, but you might not end up qualifying for the loan if you make mistakes during the loan approval process.
Below are a list of pointers I give my buyer clients to make sure they protect their home purchase during the process:
Don’t open any new credit cards. When you apply for a credit card, the credit card company will run an inquiry on your credit, which can wind up lowering your credit score. Check in with your mortgage lender before opening any new credit cards, or hold off until your mortgage is finalized and you have the keys to your new home.
Don’t take out any new loans or buy a car. Having a good credit score is key to qualifying for a mortgage. Taking out a new loan means taking on more debt, and reducing your debt-to-income ratio could put the mortgage loan in jeopardy.
Do not cosign for anyone else. You might not be the primary person on the loan, but cosigning makes you financially obligated to cover the payments if the primary ends up defaulting. Even if they always keep their loan in good standing, the loan will show on your credit report until it is paid off in full.
If you are a cosigner on any loans (like a car payment), expect to have to reach out to the primary person on the loan since your lender will likely need a year’s worth of bank statements from them to prove they have made all of their own payments.
Don’t change jobs. Banks are wary of issuing a loan to someone with an unstable employment history. Lenders look at employment history, and a change can mean that you won’t be seen as having the stability to make regular payments in the future. Most lenders like to see at least two years with the same employer. A sudden switch can also set back the loan process if you have to wait a month for your first pay stub, an item the lender will need to review.
Don’t consolidate debt. Debt consolidation brings all of your debt under one monthly bill and often can reduce your interest rate. Your mortgage preapproval was based on the state of your debts and credit score at the time you applied for the loan, and any changes could disrupt the loan approval.
Don’t miss any loan payments. The lender is going to run a credit check before finalizing the loan, and any late or missed payments can have a negative effect on your credit score. It is imperative to stay current on all credit card payments, auto payments and any other bills.
Don’t buy furniture. I know buying furniture is one of the more fun ways of setting up your new home, but hold off until you have the keys. Using your credit card means taking on additional new debts, which could put your loan at risk. Wait until after the official close to start shopping.
If a big purchase or job change is truly unavoidable, it is best to discuss it with your mortgage lender upfront. Since any of the above-mentioned items on the list can result in loan denial, I believe it’s best to hold off. Once you are officially a proud homeowner, you can move ahead with all of your plans.