After getting pre-approved for a mortgage, it’s common for borrowers to breathe a sigh of relief and feel as though they’ve arrived. While pre-approval is an important milestone that should give you confidence in your ability to move forward with the purchase of a home, until the loan has fully funded there are some common mistakes you need to watch out for. These three honest mistakes can impact your ability to close on the mortgage.
1. Changing Jobs or Income Sources
One of the most common mistakes buyers make after getting pre-approved is changing jobs or their income structure. This can be problematic even if you’re changing to a better paying job. Lenders base your pre-approval on your employment and income stability at the time of application. If you switch jobs before closing on your mortgage, even if it’s a higher-paying position, it could cause our underwriters to question your income reliability. Changing from a salaried position to a commission-based or freelance role can also raise red flags, as variable income streams are considered riskier.
To avoid this mistake, do whatever you can to maintain your current job or income structure until after closing. If changing jobs is totally unavoidable, just be sure to communicate with us before making any decisions so we can minimize delays. We can advise you on how the change might affect your pre-approval status and what steps to take to minimize disruption to the mortgage process.
2. Large Purchases and New Debt
It’s tempting to start shopping for new furniture, appliances, or even a new car after you’ve been pre-approved and you begin to prepare for a move into a new home. However, making large purchases or taking on new debt can severely impact your mortgage approval. Your approval status partly depends on your debt-to-income (DTI) ratio, and adding new debt can push this ratio beyond the acceptable threshold.
Taking out new lines of credit or loans can temporarily lower your credit score, which is crucial for maintaining your mortgage pre-approval. Even opening a new credit card for a promotional discount can have negative effects, so it’s best to delay anything like this until after you are in your new home. Our underwriters recheck your financial situation before closing, so any significant changes in debt or credit could result in higher interest rates or losing your pre-approval altogether.
Keeping your financial picture as stable as possible throughout the mortgage process is essential to protecting your pre-approval.
3. Co-Signing for Someone Else’s Loan
Helping a friend or family member by co-signing their loan may seem like a generous way to support their success, but it can have significant consequences for your mortgage pre-approval. When you co-sign, you are legally responsible for the loan, and it appears as part of your debt obligations. This can raise your DTI ratio.
Even if the person you co-signed for makes their payments on time, your ability to qualify for a mortgage could be affected. In some cases, co-signing could cause you to lose your approval status altogether. To avoid this mistake, it’s best to hold off on co-signing for any loans until after you’ve secured your mortgage and closed on your home.
These are all honest mistakes that can be a frustrating hurdle for borrowers, so we want to make sure your clients know to avoid them. As our own Jackie Barikhan says, “The more you understand the mortgage process, the more confidently you can choose the right loan for you and move through the application process. We have decades of experience finding the funding that is exactly the right fit for our clients and we love to educate along the way.” If you want to learn more about the mortgage lending process or finding the right mortgage for you, we can help. Contact us any time to apply for a mortgage or find answers to your questions.
