I had the opportunity to chat with a realtor friend over the holiday. She mentioned a Buyer she was working with and how their situation changed course after they were pre-approved by a lender.
They were pre-approved and had a guaranteed low mortgage rate commitment however as they were looking for homes with their broker, on a Saturday, when they were not home hunting, they found an SUV that was an amazing deal and they purchased it. What happened next, was they lost the pre-approval as they no longer qualified with their new car loan.
This happens more than you would imagine, and many home Buyers would never think that taking on new credit obligations would impact what they can afford. However, it does, and many times a Buyer finds this out when they place an offer on a home during the financing condition period and are declined by the lender. It is a shock to the system.
If you are buying a home here are a few ideas on what not to do once a lender pre-approves you for a mortgage:
- Make large purchases – after you get pre-approved for a mortgage resist the urge to buy any items on credit. These can be cars, furniture or any expensive items. Even cell phones can impact your qualification.
- Stop making any loan, line of credit or credit card payments. Missed payments can impact your credit score and lenders lean heavily on declining credit scores during the pre-qualification period.
- Change jobs – Once you have been pre-approved, it is critical that you remain at the same employer. Changing your career may cancel the agreement with the lender.
- Deposit or withdraw large sums – in the event you have large sums coming or going from your bank account may trigger an underwriter to question where the money is coming from or going. Lenders like to see stability in banking history.
- Swap lines of credit/ credit cards – do not charge credit cards after a pre-approval has been obtained. Any new credit, even if it is to replace a credit card will require a credit report to be drawn and lenders will be cautious if any credit reports are requested from the pre-approval being issued to the move-in date.
- Co-sign or guarantee a loan – when you co-sign or guarantee another person’s loan or mortgage, you take on their debt as if it was your own. This will negatively impact your creditworthiness, and guess what happens? A credit report is done, which will be negatively viewed by your lender.
- Ignore any lender requests – once a pre-approval is issued it is not unusual for a lender to request items as proof of information in the application. Items such as letters of employment, and bank account statements are typical requests. Ensure that you are prompt in delivering the items requested.
- Close any bank accounts – again, this falls into stability. If a lender sees any accounts being closed, they will likely ask for information on why they were closed and documentation.
- Pay off large debts – this sounds counterintuitive, however, given that lenders question anything out of the ordinary, if you do pay off a debt, have a paper trail of why you retired the debt and where the money came from to do so.
We recently had a client who had a pre-approval and we were working with the couple to find their move-up home. Their situation was complicated because they owned a home and were refinancing it to raise funds as a down payment for a new property. They were planning on keeping the property they currently owned and renting it out. I received a call from one of the Buyers sharing that he found a car he loved with really low financing. This was after being pre-approved and before they found a home to purchase. When I had them chat with our mortgage broker, they were told that with the new car purchase, their pre-approved mortgage amount would drop by $100,000. In the end, they held off on the car purchase, found a home they loved and once they had moved into their new home, they found a suitable car. Car loans are much easier to obtain than mortgages and in this case, the client ended up with the home and the car with rates that worked within their budget.
When you apply for a mortgage, the banks will turn over every “rock” to ensure that you qualify for the loan. They do this twice. First during a pre-approval application and secondly, when they are finalizing the mortgage and signing off on it once a home has been purchased. It is best to do nothing during this period but house hunt, save as much as you can for a down payment and plan your housewarming party. Everything else can wait until you settle into your new home.
If you are planning on purchasing a home this spring, get in before the rates increase. I can help you from pre-qualification to finding your dream home. All you need to do is email firstname.lastname@example.org or give me a call at 905-743-5555
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