Preparing to qualify for a home loan is like preparing for a playoff game. During the season, you work to improve your credit score, save enough for a down payment, gather and organize all the necessary documents and search for homes within your budget.
Once you’ve finally been approved, you might think the season is over and victory is yours! But, before you can take home the championship, there are still a few things that stand between you and your closing day. Here are some tips to help you prepare.
Homebuying Foul Number 1: Missing a payment
Lenders check your credit score before approving you on your loan to make sure that your credit is up to par. The better your credit score, the more favorable your financing will be. Right before closing on your loan, your lender will need to make a soft pull on your credit to ensure that everything looks the same as it was when you were first approved. So, if you missed a payment during that time period, it could cause your credit to drop and throw off the entire loan.
Your credit score affects a lot of different aspects of your loan. It affects your interest rate, private mortgage insurance payment, and your debt-to-income ratio on the loan. So, if your credit score is lowered before closing on your loan, you can end up with not as favorable financing, and your closing date could be delayed. Worst case scenario, you could jeopardize the loan if your score drops too low.
Homebuying Foul Number 2: Getting a new job- Lenders want to know that you have a steady income and a consistent work history before approving your loan. After all, they’re lending you a large sum of money and they need to be sure you can repay it. However sometimes life isn’t always timed perfectly. Maybe you’ve come across a once in a lifetime job opportunity, or your past job just isn’t working out for whatever reason. But it’s important to understand that changing jobs could have a huge effect on your loan.
It’s always best to wait until after closing to switch jobs. However, if you’ve already made up your mind about changing jobs, the best piece of advice that I can give is to call your loan officer and communicate what type of change you’ll be going through, and if you’ll have more or less income. Typically, an employment change can be overcome as long as you remain a W-2 borrower with a steady income.
Homebuying Foul Number 3: Switching around finances depositing or withdrawing large sums of money. Doing anything unusual in your bank account could trigger an alarm for the lender. You might be surprised to hear that even depositing large sums of money before closing could be a cause for concern.
Avoid using large amount of cash during the mortgage process. Do not pay off credit cards with cash or decide that all the money that you have in shoebox should be deposited during the process. Large deposits of cash cannot be sourced and cannot be used, and it creates a mess of bank statements/assets.
If you are being gifted money for a down payment or closing costs, let your lender know ahead of time. If it’s a sum of money that is larger than half of what you make in a month, then you’re going to need to source it. You will need to have a letter from the gifter stating that the money is a gift and not a loan.
Homebuying Foul Number 4: Making big purchases, such as a car or furniture. It can be really tempting to purchase a new car or brand-new furniture to go along with your new house. But when you use credit to finance a large purchase—such as a car or furniture—it can throw off your debt-to-income ratio, which is an important factor that your lender uses to determine how you’re your qualified to borrow. By taking on new debts, it’s possible that you could no longer qualify for your loan. It's recommended to wait until after closing to make any big purchases.
Before making any financial decisions, its best to consult with your loan officer on how it might affect your loan. Overall, keeping a clear line of communication just makes the process a whole lot easier.
The information contained herein (including but not limited to any description of TowneBank Mortgage, its affiliates and its lending programs and products, eligibility criteria, interest rates, fees and all other loan terms) is subject to change without notice. This is not a commitment to lend.
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