As the closing of my home loan draws nearer, I have been diligent about making sure my personal finances have stayed in order. While it has been a long process, it has gone relatively smoothly. We are set to close in just two weeks. Unknowingly, we could have delayed our closing by doing a number of pretty common things over the last few months that could have jeopardized our loan. Unfortunately many other soon-to-be homeowners will make mistakes that cause a delay in their closing.
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As the mortgage industry continues to recover, lenders are still laying down the law and requiring strict measures before approving mortgages. Throughout the entire process, from the loan application to loan closing, homebuyers need to ensure their financial matters are kept stable. If not, lenders can delay the purchase of a home or even refuse mortgage approval. Any changes in financial status can negatively affect the home buying process.
Here is the list of ‘Financial Don’ts’ when you are approaching a loan closing:
If you apply for a home loan and proceed to charge your credit cards to the limit, you can stop your closing. The mortgage approval process involves analyzing a buyer’s debt-to-income ratio. If you went through the application process with a good ratio but later change the ratio by acquiring more debt, the numbers change. If your debts exceed your income, you are putting yourself at risk for being denied a loan.
Potential homebuyers can easily make this mistake in preparation of moving into a new home. They purchase big ticket items they will need after the move such as appliances or new furniture. Wait until after the loan has closed before buying on credit and always make sure you can afford what you are purchasing or you’ll likely jeopardize your ability to make your first few mortgage payments.
Even as you are days away from closing, a lender can recheck your credit. If you are found to have new credit accounts or loans, you risk losing out on your loan. You don’t even need to have charged purchases on a new account. The simple act of opening a new line of credit can hurt your loan or delay your closing. This is especially important should you miss mortgage payments down the road. If a lender were to go back through your credit history and discover you bought a new car before closing on your loan, the lender can actually make you buy back a bad loan.
Your best bet is to refrain from any new lines of credit or loan applications until you have officially purchased your home. Again, only buy what you can afford, especially with a new mortgage obligation.
If you quit your job or change to a new job, you can potentially harm your loan closing. Lenders are looking for at least a two year job history. By changing jobs, even within the same company, you can mess up your income information originally used to get the loan. If you move from a salaried position to one that is commission-based, you are changing your compensation proof and you no longer have a history of steady employment, both negatives for a lender.
If, during the mortgage loan process you are offered a new position within your company or a new job with a different company, explain to your employer or potential hiring agent that the timing is not right because of your impending home loan. Generally, people can understand these circumstances and can delay changes until your loan has been completed.
As the mortgage process has become more complex and strict, it is always wise advice to keep your credit in the best shape possible until the closing so you don’t risk losing your loan. Everything else can wait until you are settled in your new home. It also makes sense to wait and really think about what you truly need in your new home before letting excitement take over and leaving you in debt from purchases you could not afford. Missing mortgage payments is a sure-fire way to endanger your entire family should foreclosure become a concern. First-time homebuyers are especially susceptible to overspending because they may not be fully aware of how much owning a home really costs. Stick to your budget and limit credit purchases before, during, and after the loan.
|700 - 750||Good|
|640 - 700||Average|
|580 - 640||Poor|