Ready to Close on Your Mortgage? Better Keep Your Credit in Check

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.

Photo by respres via Flickr

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.

3 Things You Shouldn’t Do Before Your Closing

Here is the list of ‘Financial Don’ts’ when you are approaching a loan closing:

Maxing Out the Credit Cards

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.

Applying for Other Loans

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.

Quit Your Job

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.

About the Author

By , on Jul 2, 2010
Tisha Tolar
Tisha Tolar is a co-owner of Trifecta Strategies, LLC and the author of Gen X. When she is not busy being a fiction writer, she writes personal finance articles for several web sites, including Moolanomy.com.

Credit Score Ratings Chart

Credit Score Description
750+ Excellent
700 - 750 Good
640 - 700 Average
580 - 640 Poor
below 580 Bad
see your credit score now

Leave Your Comment (17 Comments)

  1. chata says:

    is it policy to run a credit check on someone that will live in the home but not on the mortgage application? Thank you in advance.

  2. Esdras Meneces says:

    Hi my name is Esdras and me and my wife are just waiting to close in about a month or so. But i just heard the rummor that our company is getting fired and a new one will start next month but me and my wife will be hired at the same wage and everything. It would actually all be the same exept for the fact that it will be a different company. Would that hurt or jepordize closing?

  3. Mike says:

    Hello, My question is where are about 10 days out from closing everything looks good, but i have some concerns. 1st I have a credit monitor system that I use and notice that with interest on my credit card it went over the credit limit and was reported to the credit bureau. I jumped on this right off to bring it back down. Mind you this was only about a 25.00 variance from what I reported to the lender Even though there are no marks my credit the score did go down on the report I can see. My lender did tell me since I’m in the 120 day period they will not be pulling my credit again, but since there was new credit acquired one week before we applied for the loan the underwriter wanted info on the new acquired credit. Adding the credit we were well with in our debt to income ratio still. She did explain that this week she needs to do credit update adding the new account. Do have anything to worry about??? Or she just adding and not pulling the full report.

    • Pinyo says:

      @Mike – I wouldn’t worry about it because there’s nothing you can do at this point. Whatever is going to happen, will happen. You’ve already done what you can at this point. In my experience, a good mortage broker/lender will help you work through this kink if needed.

  4. kim says:

    I have a question my husband and I are in the process to close we still have 45 days but the thing is we had a bad debt come on our credit and we were hit with 70 points off our credit. Now we don’t know what to do. Our lender can no longer give us our loan and she said that we need to have the hospital bill say it was an error in order for us to proceed, which sucks. We called and paid the bill without taking any discounts and they would not take it as an error or will they take it off. So, we don’t know what to do. We are pretty much in a sad place right now and not sure what we should do. We did dispute it but I don’t know if that will actually work, we are even going to try and get another company that wrote something off a few years ago to call it an error and take full payment or get them to put that it was in good standing and we paid in full and hope for only the best. We want this house so much and can’t afford to lose it we are already out $1150 as of now. 🙁

    Do you have any advice?

    • Pinyo says:

      @Kim – It does sucks and I am not sure if I have a good advice to give you. Unfortunately, home loans are not that easy to get these days and lenders do scrutinize borrowers a lot more than they used to.

      Perhaps the seller is willing to negotiate and go into a rent-to-own situation until you work things out with your lender?

      Also, why are you already out $1150? Is this the deposit for the house? If so, there’s usually a financing contingency clause that allows you to get your deposit back if you do not qualify for a loan.

  5. Jackie says:

    With the newly proposed mortgage reforms credit requirements will become even more stringent. Consumers with a sixty day late payment within the past two years will no longer be able to qualify for the lower interest rates.

  6. Applicant’s ratio is really closely followed by the lenders. They do not want to take more risk than is necessary. That is better for applicant as well because his (or her) priority should be the ability to pay the mortgage till the end.

  7. So it’s literally zero cash out of pocket? That’s very rare. Generally that’s covered by a rebate no? Can you elaborate who that someone else is who’s paying i.e. bank, your parents etc?

    thnx

  8. Pinyo – That’s a great rate. Is it a conforming loan and what will it cost i.e. any points and normal closing costs/

    • Pinyo says:

      @Financial Samurai – Thank you. It’s a jumbo loan, no point, and someone else is paying the closing costs for me.

  9. Jenna says:

    I have a question about the quit your job section, what if the reason you are selling your home / buying a new home is because you lost your job or because you are relocating for another job? Seems like there would be a lot of wiggle room for this.

  10. A well timed post b/c I am refinancing now. What did you refinance from to? Rates, duration etc?

    thnx

    • Pinyo says:

      @Financial Samurai – I am in a similar situation right now…waiting to refinance. Going from 5.375% 30-yr fixed to 4.875% 30-yr fixed — not a big change, but the lender made this an opportunity I can’t pass up.

  11. Good post! Well I agree with what you have to say, it is better to be careful before closing your mortgage, as the loan companies are always looking out to trap you with the burden of debts.

  12. Gregg Pechmann says:

    Good points. The best advice I give people is to do nothing! do not add to credit cards, decide to walk away from your job, etc. Just chill out with your finances until you have the keys.

    Also, be aware of the 4506’s that get pulled on every file now. If you have a side business that you do not claim on the application, and that side business has lost money……the 4506 will shine the light on this and the underwriter will count this against your income…..
    Have a great 4th!

Leave a Reply

Your email address will not be published. Required fields are marked *

*

Disclaimer

The information on this site is strictly the author's opinion. It does NOT constitute financial, legal, or other advice of any kind. You should consult with a certified adviser for advice to your specific circumstances.

While we try to ensure that the information on this site is accurate at the time of publication, information about third party products and services do change without notice. Please visit the official site for up-to-date information.

For additional information, please review our legal disclaimers and privacy policy.

Notice

Moolanomy has affiliate relationships with some companies ("advertisers") and may be compensated if consumers choose to buy or subscribe to a product or service via our links. Our content is not provided or commissioned by our advertisers. Opinions expressed here are author's alone, not those of our advertisers, and have not been reviewed, approved or otherwise endorsed by our advertisers.