Getting pre-approved for a loan should be the first and is the best step you can take in your home buying process. Before even looking at homes, you should talk to a mortgage broker or lender to see what your options are. A pre-approval tells you what a bank is willing to lend you after looking over some of your financial data.
The pre-approval is based on an evaluation of an applicant’s credit, income, debt, and assets. If these items make a significant change before your final approval the offer to lend you money could be reversed.
Here are some things that can lead to denial after pre-approval.
Applying for New Credit
Your current credit score can be pulled at any time leading up to the final closing of the mortgage loan. Any changes that cause a negative hit to your credit score can alter the terms of the mortgage loan or cause it to be denied. Applying for a new line of credit in the form of credit cards or other loans or even financing a new cell phone can lower your credit score as well as increase your debt-to-income ratio, another key factor in a mortgage approval.
Large Purchases
It can be tempting to start purchasing new things to fill your new home with and make your move more ideal. Even if you purchase these things with the cash you have and don’t take on more credit, it will put a dent in your accounts. It is a good idea to keep your debt-to-income ratio under 30% and to keep as many available funds as possible in your accounts. You can still purchase nice new things to fill your home, it would be better to wait until after the mortgage closes.
Missing Other Loan Payments or Credit Card Payments
Make sure to continue to pay all of your current bills on time. Payment history is a large contributing factor to your credit score.
Switching Jobs
Considering a career change is not a good idea while you are searching for a home after being pre-approved. Some career changes are beyond our control, like the choices the company makes for you, but the ones you can control should wait until after you are in your new home. Career stability is a big factor in an applicant’s reliability and a new job could also alter your income as well.
Making Large Deposits w/o Proof of Where They are From
Underwriters look into your financials and if they see large deposits in your account, they will be curious to know if it is borrowed money. This will mean your debt-to-income ratio has become larger. This could tell the underwriter you are less reliable and stable to loan money to.
Any deposit of a significant amount, especially of $1,000 or more. If a loan officer sees large deposits they will raise a question about where it came from. They will want to see documented proof of where the money came from.
If you are not sure if a financial decision after pre-approval will alter your state of final loan approval, it is best to ask a professional. Mortgage brokers are a great source not only of shopping for all of your loan options in one place, but also to help you make the best decisions for loan closing success.
For more information on your mortgage options in Mission Viejo and surrounding areas please contact me any time.
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