Ensure a Smooth Closing Process by Avoiding these Financial Steps
It’s important to keep a few things in mind when applying for a mortgage and closing on the home. Maintaining financial stability during the home-buying process is vital to the success and ease of your transaction. Minor fluctuations in your credit score could substantially impact your mortgage interest rate and loan approval. It’s important to avoid any action that can negatively influence your credit or change your financial situation. Here, we summarize 10 financial moves that you should avoid if you’re in the process of buying a home.
1. Changing Jobs
A stable employment history is a preferred characteristic for lenders. Disruptions in employment history, specifically those like changing a job during the home-buying process, can raise concerns for lenders. Instead of raising a red flag, try to hold off on any job or career changes.
2. Large Purchases
Changes in your debt-to-income ratio can affect your ability to qualify for a mortgage. People with higher debt-to-income ratios can be seen as riskier when it comes to loans and borrowing, and they may no longer qualify for a mortgage. Resist the temptation to make any large purchases.
3. Running Up Credit Card Balances
Your balance-to-limit ratio on your credit card is a significant factor in determining your credit score, which is then significant in the mortgage application and home-buying process. Try to keep your balances low and avoid maxing your cards out during this time to maintain a healthy credit score.
4. Applying for New Credit
Maintaining a healthy credit score also means limiting the number of credit inquiries as each inquiry can temporarily lower your score. Avoid applying for any new credit cards, loans, or lines of credit during the buying process
5. Cosigning for Others
Another form of applying for a new loan is cosigning for someone else’s debt. Being a cosigner means you are taking responsibility for the additional debt, and it can affect your debt-to-income ratio and your ability to qualify for a mortgage.
6. Large Cash Deposits
Similar to taking on additional debt, making significant cash deposits into your bank accounts can also raise red flags for lenders. Funds need to be sourced, and cash isn’t easily traceable. Before depositing any large amount into your accounts, you should discuss the proper way to document the transactions with your loan officer.
7. Undisclosed Debts or Liabilities
Failure to disclose debts is a major issue. A person’s failure to disclose debts and liabilities can result in mortgage fraud and legal consequences. It is a problem that could affect a person’s ability to purchase a home now and in the future.
8. Late or Missed Payments
Don’t jeopardize your mortgage approval by making late payments or missing them altogether. Consistent, timely payments on existing debts improve your credit score and exhibit financial responsibility to lenders while late and missed payments will have the opposite effect.
9. Closing Credit Accounts
Generally speaking, it is best to keep existing credit accounts open even if you are not using them. While many people believe that having less available credit makes them seem less risky and more likely to be approved, this simply is not true. The length and depth of your credit history is a major component in determining your credit score. Also taken into account is the percentage of available credit used. Closing credit accounts negatively impacts both of those factors, which then impacts your credit score.
10. Changing Bank Accounts
Substantially changing your bank accounts, including closing or moving accounts to other institutions, should be avoided during the home-buying process. Lenders will usually want to verify assets, and changes can significantly complicate this process.
Discussing Changes with Your Lender
It’s important to develop a good working relationship with your lender. Be transparent about any changes you’re experiencing or that you anticipate during the home-buying process. Any unexpected and planned situations should be reviewed and handled to ensure loan approval. Maintaining transparency and an open line of communication will be key before taking any financial actions.
The home-buying process is stressful and involved as it is. To make the process go as smoothly as possible, you’ll want a qualified mortgage lender to explain how your financial decisions may impact your home loan. If you work with a reputable real estate agent, like those at Margaret Rudd & Associates, Inc., REALTORS®, ask who they would recommend to handle your mortgage. They’ll not only make a few suggestions for a lender, but they should be able to provide you with referrals for insurance, home maintenance, and so much more! After all, they’re the local experts!
Posted by Margaret Rudd & Associates, Inc., REALTORS® on
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