It’s not done until it’s done. Every good loan officer will tell you that when you are in the process of getting a mortgage, and you haven’t closed on the deal yet. So, one wrong move, and you could possibly hurt your chances of getting the loan you need to buy the house you want, says Kevin Maher, community outreach coordinator for DebtHelper.com in West Palm Beach. Fla.
Realtors tell him horror stories of what people did to mess up their pending mortgages.
“For instance, one lady thought a new Lexus would look great in her new driveway. Well, she got the Lexus and not the driveway or the house,” he said.
If you take out another loan or credit of any kind, no matter how big or small, you are changing your debt-to-income ratio which can affect your score and about ability to get the interest rate you were hoping for, he says.
Maher counsels people and teaches first-time homebuyers on how the process of getting a mortgage works and all the things not to do.
Here are some of his no-no’s when you are in the process of buying a house and getting a mortgage:
1. Don’t Do Anything that Changes Your Credit
You’ve dreamed of having a new Jacuzzi in your backyard. So, the outdoor store was having a great deal with 24 months same as cash deal. You figured it would look amazing on your new patio. But you forgot, it isn’t your house yet and the loan hasn’t gone through completely.
Oops. Slow down those dreams. Remember that you must be patient during the mortgage process and not go out and put a bunch of things on credit or get new credit cards.
“You don’t want to buy anything new. Don’t add any debt to your existing credit, not until you close,” Maher says.
If you make a major purchase and put it on a credit card or take out a personal loan for it, your debt-to-income ratio goes up. The ratio shows lenders if you have a good balance of debt and money coming in. It basically is the amount of debt you have acquired from your student loans to credit cards compared to your monthly income. The lower your ratio, the better for you.
2. Don’t Change Jobs
Your dream job just came along, and you took it before your mortgage was approved. Plus, the new job is with a different company doing something completely different than what you told your loan officer you do for a living.
Oh no. That’s not good. This could have a big impact on the approval of your loan even if you will be making more money. Income, when it comes to mortgages, is not only about what you make at the present time but also viewed through a scope of the past and future. Lenders assess whether the income is good, dependable and likely to continue. And even when the loan is clear for closing, all lenders verify employment within three days of closing.
But if you have to change jobs during the loan process, you need to talk with your lending officer. The officer will most likely need more documentation plus a month of pay stubs, too, Maher says.
3. Don’t Co-Sign a Loan with Anyone
Maher hates co-signing in any situation, but it’s really not good if you are hoping to get a mortgage approved.
“There is nothing worse than when an elderly couple helps their grandson get a loan for a car. He promises to pay the loan. He doesn’t, and then the car is repossessed. That hurts the grandparents’ credit score, too,” he says.
If you really want to help someone who needs financial help, Maher suggests giving them $500 to open a secured credit card and let them build their own credit. But never ever co-sign a loan with them no matter who they are.
4. Don’t Come Up with Money You Can’t Document
Aunt Jane cleaned out her apartment and found $3,000 stashed in all her books. You are her favorite niece. So she gives you the cash to help you with your new house. You stick it in your savings account a few weeks before you close on the house.
It sounds great, but the lender will be checking on things before the loan is approved. If all of a sudden, a big chunk of money appears in your account, suspicions could arise.
“Lenders want to know you really saved the money yourself, or they need to know that you got the money legitimately. It has to be traceable and documented,” Maher says.
Your aunt can give you the money. But there has to be a canceled check, and she might have to write a letter saying where she got the money.
“Bankers don’t like cash mysteries,” he says.
5. Don’t Give Realtor Pre-Approval Letter with Too High of an Amount
OK. By now, you should know what you are comfortable with when it comes to your debts and disposable income. When you get that pre-approval letter from your lender for amount that is higher than you are comfort paying, then ask him or her to lower that amount if the lower amount is what makes sense for your budget, Maher says.
“Higher prices mean higher commission, so don’t tempt the realtor to tempt you,” he says. “If the person you are relying on for advice is going to gain monetarily if you take that advice, you better shop around, do your own research and read everything. Even if it’s a friend or a relative, you are always the one ultimately responsible for your decisions.”