You got the pre-approval you wanted to buy a home. The relief has set in and you think you can let your guard down when it comes to your finances. Unfortunately, that’s the biggest mistake you can make. This is the time that you must stay vigilant about your finances. Making even one small mistake can make you lose your pre-approval.
This list will help you understand the mistakes to avoid.
Your lender likely verified your income and employment before providing you with a pre-approval. This is a large part of your approval as it’s how you can afford the mortgage payment. If you change jobs before you close on the loan, the lender will have to start all over again.
New employment may mean that you have to wait 6 – 24 months before you can get a loan approval. Lenders like to see consistency and reliability in your employment. Changing jobs offers neither of those things. The lender will need to wait and see if you stay at this job and monitor your income patterns over a series of months or even years before you can get a mortgage.
Apply for New Credit
Just because your mortgage lender pulled your credit already, it doesn’t mean they won’t pull it again. Most lenders pull a borrower’s credit two times – once at the pre-approval stage and again right before you close on your loan.
If you applied for new credit in the meantime, the lender will know about it. If you obtained the new credit line and it’s reporting on your credit report, your lender will see the new trade line. This will throw up a red flag. The lender will have to include that payment in your debt ratio. If the DTI is too high, it could cause you to lose your approval.
If you didn’t get the credit line or the creditor didn’t report it to the credit bureaus yet, it will show up as an inquiry on your credit report. Lenders will ask about any inquiries and require proof that you didn’t open another trade line since your pre-approval. If you have a new trade line, you may have the DTI trouble as discussed above.
Charge Up Your Credit Cards
You should also avoid using the credit cards you already have. If you always use them for everyday purchases and pay them off, that’s one thing. If it’s habits you already had prior to obtaining the pre-approval, it won’t be a cause for concern for the lender.
If, however, you decide to rack up your credit cards with large purchases for furniture or appliances, the lender will balk at it. This will raise your monthly obligations, as you’ll have a higher minimum payment due on your credit cards. The lender will have to recalculate your debt ratio to make sure that you still meet the guidelines for the loan.
Depleting Your Savings Account
Even spending your cash can make you lose your pre-approval. Chances are that when you applied for the loan, you told the lender you were going to make a specific down payment. The lender may have even verified those assets already. If you deplete that account, you won’t’ have the money necessary for the down payment and/or closing costs. This could leave you without your loan approval.
Ruining Your Credit
Aside from racking up your credit or even applying for new credit, you can ruin your credit in other ways. One of the largest ways is by paying your bills late. If you pay a bill more than 30 days late, it gets reported to the credit bureaus. This will then alert the lender that you can’t handle your financial obligations and it could cause you to lose your pre-approval.
Not Tracking Deposits
If you deposit any money into the account that you verified with your lender, you will need to have proof of their origination. If the money is from your employment, it’s easy enough to prove with your paystubs. Any other types of deposits, though, must be verified.
The easiest way to handle this is to keep the proof of where the money came from. For example, did you sell an asset or stocks? You should have a bill of sale or another type of proof of the sale. Keep that proof as well as the canceled check. As long as the amounts match to the penny, the lender will be able to verify the deposit. This means you have the deposit the entire check at once. Don’t make the mistake of depositing part of the check and taking the rest out in cash. If you need the cash, you can make a withdrawal after you deposit the entire amount so that you have proper proof for the lender.
These simple habits can make you lose your pre-approval quickly. The best thing you can do is freeze your finances, as they are when you get the pre-approval. This way when the lender verifies all of your information a second time around, nothing will have changed. If you do have anything change, be upfront with the lender right away. The more honest you are with your lender, the better your chances of keeping your pre-approval to buy your home.