You have found the perfect home for your family and have been preapproved for the loan. You must be feeling good as your mind is now focused on moving into your new home. But, it is not done until it is done. A preapproval offer from a mortgage lender is not a loan guarantee. It is based on your income, credit, debt, and assets. Any significant changes in these before the final approval could delay the mortgage closing or even put you at risk of not been approved at all.
Below, are five common pitfalls that first-time homebuyers should avoid during the loan process to ensure they get the loan they need to buy the house they want.
Pitfall 1# Taking On New Debt
When preparing for homeownership the desire to purchase new furniture, appliances, and other pricey household items or even a new car can be tempting. Especially, when you come across enticing offers like no money down and zero-percent interest credit. However, any large purchase either by cash or credit will increase your debt to income ratio or credit utilization. Mortgage lenders weigh these numbers heavily to determine the amount of loan you qualify for and it can jeopardize your qualification for a mortgage. It is in your best interest to play it safe and save large purchases for after you close on your mortgage.
Pitfall 2# Missing Credit Card And Loan Payments
Purchasing a new home can be expensive as besides your monthly obligations you have additional expenditure like closing costs and paying for movers etc. But, remember that it is important that you do not incur late fees or miss paying for any current debt. Payment history is important as it accounts for 35% of your credit score. Even one late payment of 30 days or more can drop your credit score by about 50 points. So, you should ensure that you do not spend more than you can pay off in time.
Pitfall 3# Opening Or Closing Lines Of Credit
During the loan process, you should avoid opening and closing credit lines and co-signing loans as this can negatively impact your credit score.
You need to keep your credit as stable as possible, especially if you have already been preapproved. Do not open any new credit cards or close a current credit card as it can negatively impact your credit score. You should use your existing credit cards as normal, but, ensure you pay the bills on time to avoid racking up debt. If it is necessary to open a new account, then you should consult your loan officer to make sure that it will not cause any problems with your loan approval.
Pitfall 4# Making Major Career Moves
Situations where you lose your job or are being out or work might be beyond your control. However, exploring a new career path, seeking employment elsewhere, or quitting your current job during the loan process is not something that smart homebuyers do. Switching jobs or professions (even if you will be earning more) will not translate well when qualifying for a mortgage. It could mean an income adjustment and revisions on the amount you are approved to borrow. It will also require additional documentation and verification which can complicate and even slow down the mortgage process.
If your career change comes with an immediate and bigger pay raise you need to consult your loan officer and provide more documentation. However, it is advisable to avoid making any major professional changes until you have closed on the home.
Pitfall 5# Making Large Deposits Without Creating A Paper Trail
Payroll deposits and transfers between accounts are fine, but making large deposits (generally over $1000) can indicate newly borrowed money and will need an explanation. Lenders do not like cash mysteries and will need to know if you saved the money yourself or got it legitimately. So, keep your deposits separate and small. Do not make any large out-of-ordinary deposits without proper documentation.
If you have received or are anticipating a large monetary gift from a family member or friend to go towards your down payment, talk to your loan officer to avoid any conflict during the loan process. However, it in your best interests to hold off large deposits until after closing.
If you need more information on mortgage applications or worried about the home loan process, reach out to one of our experienced loan officers at (877) 877 7575