CONGRATULATIONS! You’ve been pre-approved for your first mortgage loan, and you’ve found the perfect starter home. Your offer was accepted, the home inspection passed and your loan officer locked you in at a favorable rate. You likely think you’ve all but sealed the deal.
You won’t officially be a homeowner for another 30 days, give or take depending on the situation, so hold your horses. Because guess what? Your lender will check your credit again just before your closing date, prior to granting you the funds. Your lender might also need additional information from you while processing your loan application. That means that keeping your finances stable and being readily available to answer any questions over that 30-day time period is pretty important.
The following are a few things you should avoid doing before closing your mortgage loan...
1. Avoid quitting or changing your job
Moving from one job to another within the same company generally won’t have too much impact on your mortgage process as lenders look at the stability of your income to figure out if you are a decent lending risk. Logical job changes – those that increase your income and/or job level in a field where you have already proven yourself – shouldn’t raise any red flags. That being said, job changes that make your income less predictable will make you seem like a greater lending risk. If you ditch your steady job with stable income to become a freelancer, your bank might have some concerns.
Here are some cases where job changes are more likely to delay your mortgage loan:
Moving from a salaried position to one based on commissions or bonuses
Becoming a contract employee
Moving to a completely different industry or position
Frequent lateral job moves
2. Avoid opening or closing any lines of credit
The day after you close on the house, feel free to apply for furniture store cards and other store accounts that can save you money on the many purchases you're likely to be making as a new homeowner. But until then, don't allow any creditor to so much as check your credit, let alone open a new account in your name. While it can be difficult to correctly estimate the number of points you can lose due to newly opened accounts and inquiries versus missed payments and maxed-out cards, a FICO study shows that, on average, people with the best credit scores (upper 700s) have not opened a new account in more than two years.
On the other hand, what's important to remember about closing cards/accounts is that doing so will not raise your credit score, and, in some cases, might lower it. As with opening new accounts, if you want to close a card, wait until you're in your new home.
3. Avoid paying bills late
Paying bills late can and will lower your credit score. Generally, things like rent payments and utility bills aren't reported to credit bureaus, so you don't get "good credit" for making those payments on time. However, if one of those bills is overdue, it might end up hurting your credit, if the company you owe sends the bill to a debt collector.
4. Avoid making large cash deposits to your accounts
Large deposits other than from normal income will more than likely be required to be sourced, and depending on where it came from could put a wrench in the process. If a large cash gift is given to you it is best to disclose it to your loan officer. In fact, if that is going to be the case, talk to your loan officer first. And it is probably a good idea to ask her beforehand what is considered an unusual deposit period, so you will be aware and not make any mistakes.
5. Avoid co-signing another loan with anyone
If you do, you are legally responsible for that debt, and it will increase your debt-to-income ratio.
6. Avoid changing bank accounts
When you applied for your loan and received your pre-approval, you had to provide a lot of different documents, like income documents, proof of employment, list of assets, etc. One of the documents you had to provide was a bank statement. Most lenders will request your bank statements (checking and savings) for the last two months when you apply for a mortgage to buy a home.The main reason is to verify you have the funds needed for a down payment and closing costs. The lender will also want to see that your assets have been sourced and seasoned. Sourced means the lender can determine where the money came from. Seasoned means that the assets have been in your account for a certain length of time. If you change bank accounts you will have to go through the process all over again, which usually means waiting at least 60 days for seasoning. It may even require a letter of explanation.
Depending on your personal situation, you might want to take some time to get comfortable with your new mortgage payment — and after that, it’s probably okay to splurge on that new kitchen table, go on a long vacation or open a new line of credit. But doing so before you close could potentially put getting your home in jeopardy.
Lynsey Camp with Highlands Residential Mortgage sees instances like this all the time and she offered the following insight: "The best piece of advice is don't do anything without asking or talking to your lender first. Every single instance will be different. Buyer should go into the process knowing that they should NOT make any changes, even changes they THINK are good changes, without talking to their lender first. They might think paying off their old debt is a good decision and can't possibly hurt their credit- but in the world of loans and mortgages it might. Always, always, always talk to your lender first."