Are you buying a house or looking at a refinance and just starting the loan application process? There are plenty of blogs and articles that will tell you how to prepare and get ready to be a good loan applicant, but today, we’ll tell you 20 things NOT to do during the loan process. Understanding (and following) this guidance could mean the difference between getting the keys to your dream home or saving a lot of money on a refinance…or having your loan DENIED!
- Don’t apply for a new credit card.
Not only will the inquiry show up on your credit report, but if you get approved, adding a new tradeline could very likely hurt your score, as well as mess up your Debt-to-Income ratio that’s listed on your mortgage application. Remember that 30% of your credit score is calculated by how much debt you have, so only take on new debt – or even pay existing debts down significantly – after consulting us!
- Don’t buy a new car.
Even if the dealer promises that you’re getting 0% financing and it won’t screw up your loan, it will! If you pay cash, the underwriters will see a huge withdrawal from your savings or checking, dropping your reserves and making you a less attractive – and volatile – loan applicant.
- Don’t buy furniture and expensive things for the home before you get it.
I know it’s SO tempting to start shopping for beautiful furniture, appliances, and a new big screen television to fill up that house you (hopefully) will be getting soon, but do yourself a favor and wait until the loan closes and you get the keys!
Remember that if you stay within your credit limit and pay your bills on time, maxing out a credit line or credit card will hurt your score up to 45 points!
- Don’t forget to tell us if there are any major life changes or events.
Did you decide it’s the perfect time to change your legal name? Getting divorced on a whim? So your child just started college and you’re suddenly saddled with tuition and student loan payments? All of these things are critically important when applying for a loan – and can be deal breakers!
- Don’t change jobs.
Job stability and security are of paramount importance to underwriters, who understand that without a guaranteed paycheck, your risk of defaulting on your mortgage goes through the roof. Even promotions, job changes, and new titles can be tricky to explain to underwriters, so it’s best to hold off on anything official at work until the loan closes.
- Don’t EVER lie on a loan application (including omissions.)
Oh NOOOOOOO! Don’t even think about falsifying information on your loan application, as it could come back to bite you in a big way, surely losing you the loan, the house you want to buy, and possibly even having legal ramifications. Even the smallest, seemingly unimportant questions need to be answered truthfully and completely on a loan application. And it goes without saying that you shouldn’t EVER falsify or doctor documents.
- Don’t miss any payments.
Since payment history is 35% of FICO’s scoring model, paying on time is crucial. It may seem like basic advice, but even one late payment or derogatory item on your credit report can hurt your score on a long-term basis and, tragically, cause your loan to be denied so you’ll lose the house you love. Get super organized with your debts, payment dates, and when everything was paid six months before the loan process, and definitely while you’re waiting for the loan to close.
- Don’t even trust the mail to deliver your payments on time!
But you sent off your credit card payments last week, so everything must be OK, right? Wrong, as the US postal service isn’t infallible, believe it or not. Payments get lost all the time, and don’t you know it’s Murphy’s Law that yours would not show up just when you’re applying for a home loan. So to be safe, make payments online, over the phone, or simply call your creditors to make sure they received your payment and all is well.
In the event that you do miss a payment by a few days, we might be able to salvage the situation, so it won’t hurt your credit score – or cause your home loan to be denied. The 30-day mark is usually the important cutoff when late payments report to the bureaus and negatively affect your credit score. So even if you are a little late, call your lender immediately and tell them what happened and make a payment ASAP to protect your credit sco
- Don’t move big money around.
Sizable withdrawals or deposits, or even transfers between accounts, can raise red flags with your loan underwriter. Remember that stability and predictability are the most attractive characteristics for a loan application, and anything volatile or out of the ordinary will cause them to hit the brakes on the whole loan process. Even if these deposits and withdrawals may have a logical explanation, you’ll need to provide good explanations and supporting documentation, costing you valuable time during the loan approval period.
- Don’t close accounts.
While you were reviewing your credit report from the home loan, you thought it would be a good time to close those little accounts that are still open but haven’t been used in years. STOP! Closing accounts – even if they are small, haven’t been used in a long time, or contain negative reporting items, can seriously throw your score out of whack.
15% of FICO’s scoring is calculated in regards to your history of credit, with favor given to well-seasoned accounts that have been open and in good standing longer. (Anything that is older than 24-48 months is a huge boost to your credit score.) So closing any accounts during the loan process could sink your score, jeopardizing your home loan!
Look for part two of this blog coming soon with 10 more things NOT to do during the loan process!