Your home loan pre approval is necessary to make your home purchase a done deal. But the wrong moves can make that piece of paper worthless.
He couldn’t believe his client drove up in a new car a week before her house closing. That’s not a good thing.
“She came into our office and was so proud of herself that she bought this new car to go into her new house,” says Irv Shnidman, branch manager at Movement Mortgage in Baltimore. “She told me to come outside to look at her shiny new Cadillac. I was shocked.”
Purchasing any big ticket item or taking out credit to buy anything can stop a mortgage in its tracks. In fact, for his client, buying the vehicle killed her debt to income ratio (DTI), and she was not able to purchase the house that she was under contract to do. The transaction just didn’t happen, and her dreams went down the drain.
After Home Loan Pre Approval, Keep Everything “As Is”
Buying a home has a lot of moving parts. But after you get your mortgage pre approval, avoid certain actions to keep things status quo until all the papers are signed, and you have the keys to the door.
“Fannie Mae and Freddie Mac are now saying that the credit must be pulled for new balances 48 hours before a closing,” he says. “We had somebody who went to multiple furniture stores and bought a whole house of new furniture all on credit I was the one who had to tell him that they won’t be closing on their house the following day as expected. That person didn’t quite get it.”
Their response to Shnidman: “Now, what am I supposed to do with all this furniture that is going to be delivered in a few days?” Lenders throughout the country have horror stories like this about people who just didn’t understand that a pre approval doesn’t guarantee that their loan is set in stone.
“When we have a client come in, we give them a guide of the dos and don’ts. We have important things that we tell them not to do,” he says.
Don’t Make These Common Mistakes After Home Loan Pre Approval
Don’t quit your job
“Basic as it sounds, quitting your job will stop the mortgage process. I haven’t had people consciously quit their job, but I’ve had clients lose their jobs or change jobs. And those can have the same affect depending on if it’s in the same profession or same company, or if they become self-employed,” Shnidman says.
A pre approval depends a lot on someone’s ability to repay. So when the lender sees that you no longer work at the same place, there will be red flags. And if you decide during the process that you just want to work for yourself and start your own business in the same industry that could be a big negative affect on getting that mortgage.
Don’t make a major purchase
Buying appliances, outdoor furniture or anything that is a big ticket item can be a really bad move. If suddenly your checking or savings account drops by a few thousand dollars and that money had been earmarked in your home loan pre approval to help with the down payment or closing costs, it will hurt you. The lender wants to know what money is coming in and what money is coming out.
Don’t take out any more credit
Your favorite furniture store has an amazing deal for you – 48 months same-as-cash offer, and no payments for 12 months. You can get all the furniture you need for your new house. But wait. Even though you don’t have payments to start, the lender will count payments as if they were due immediately.
“Even stay away from free offers. For example, if someone at a ball game offers you a free umbrellas for getting a new credit card, just kindly refrain during the mortgage process and go buy your own umbrella,” he says.
Don’t deposit unaccounted cash into bank accounts
A letter of explanation needs to be given to the lender any time you deposit money besides salary or wages. The lender doesn’t want to discover too late that you have been stashing $10,000 under your mattress and then decide after the pre approval to put it in the bank for safe keeping. Staying honest about everything is important.
Don’t miss a payment on your credit cards and loans
You have been so busy looking for the perfect house that you forgot to pay your Visa and Sears’ bills. Oops. Late payments can make your credit score plummet to below where the lender needs it to be to give you the mortgage you want at the rate you want. Plus, the lender can be thinking that if you can’t even make monthly payments on credit cards, what kind of homebuyer will you be and will you forget to pay your mortgage?
Get (and Keep) a Home Loan Pre Approval
You need a home loan pre approval to seriously look at homes. Without one, a real estate agent won’t even show you a home. That comes as a surprise to many home buyers.
Get a pre approval, then follow the above advice to keep it valid.