Buying a home involves many important steps, though few will matter if you can’t get financing. A loan officer will closely evaluate how large of a mortgage you can afford, and that amount can change up to the day the mortgage note is signed. Because the loan process involves examining factors such as your credit, income, debt and assets, you want to avoid or postpone several common activities that could change these figures while your home loan is being processed.
Don’t apply for new credit
You credit can and will be pulled at any time up to the closing of the loan, with any negative changes potentially altering the terms of the deal or perhaps torpedoing it altogether.
Don’t make any large credit purchases
After all of the required loan paperwork has been submitted for approval, it’s wise to limit any abnormal financial activity that might be a red flag for the loan officer.
But some first-time homebuyers spend tens of thousands of dollars on furniture, kitchenware and other household amenities – before the loan is approved. These types of substantial purchases can spike a buyer’s debt-to-income ratio, their credit utilization or both at the same time. Again, both of these figures are scrutinized by a loan officer during the loan-approval process, many times up until the day of close.
As a general rule, make these purchases after you close on the mortgage.
Don’t switch jobs
This might be out of your control, but it’s wise not to actively switch jobs during the loan-approval process. Employment verification is standard protocol for a loan officer, and a career change could mean adjustments in income and therefore revisions to the approved amount, or even outright denial.
Don’t make large deposits without creating a paper trail
To a loan underwriter, large deposits may indicate newly borrowed money and a higher debt-to-income ratio. For some consumers, this might mean they’re less likely to be able to take on more debt.
If a loan officer sees large deposits, typically over $1,000, they must be able to trace their origin. Transfers between accounts and payroll deposits are generally fine, but anything that isn’t clear must have an explanation.
If you’re not sure, ask
It’s important to understand that any major changes in personal income, assets or debt can alter the terms your mortgage, or tank it altogether. If you’re not sure how an action may affect your application, ask your loan officer for advice.