Don’t Delay Closing Your Loan With These Mistakes

Getting pre-approved for a mortgage can start your home buying journey. But even after providing your income and employment information, bank account statements, and authorizing a credit check, a pre-approval doesn’t guarantee closing.

Certain actions on your part could delay your loan closing, or worse, cancel your loan altogether. For this reason, you should avoid making significant changes to your financial situation in the time between pre-approval and closing.

Here’s a look at a few things you shouldn’t do after you’re pre-approved for a mortgage.

1. Don’t get into new debt

Several factors determine whether you’re pre-approved and affect your pre-approval loan amount, and one of those factors is your current debt load.

What some people fail to realize is that applying for new credit after getting a mortgage pre-approval can raise their debt-to-income (DTI) ratio, and potentially decrease their qualifying loan amount. DTI is the percentage of monthly income used for debt payments, and ideally, your DTI shouldn’t exceed 36 to 43 percent depending on the mortgage program.

If your debt jumps significantly, underwriters will have to recalculate your DTI. This can delay the closing or result in a loan cancellation if your debt payments wind up taking up too great of a percentage of your monthly income.

To be safe, hold off on getting new credit until after closing. This includes applying for new credit cards, financing furniture or appliances, and getting other loans. If you must apply for credit during your loan process—for example, if your car dies—speak with your loan officer first to see how a new line of credit will impact your loan.

2. Don’t quit your job

Under no circumstances should you quit your job after you’ve been pre-approved for a mortgage.

A change in employment is one of the fastest ways to delay or cancel a loan. This is because the income used to qualify for the loan is no longer valid.

Granted, situations beyond your control (like layoffs) might happen after an approval. If you’re able to find new employment quickly—in the same field and earning the same money or more—you might be able to keep your scheduled closing on track.

But if it takes too long to find a job, or if you take a job in a different field, you might be unable to proceed with your loan.

3. Don’t move money around

You must provide copies of bank account statements and information about other assets so underwriters can confirm the source of the funds you’re using for your down payment and closing costs.

Having a solid paper trail is crucial during the mortgage process. So rather than move funds across different accounts, for example from a business account to a personal account, keep the money in one place until it’s time to write a cashier’s check or wire money to the closing agent.

Too much movement of funds can raise red flags, causing underwriters to question the source of funds.

4. Don’t make a late payment

Again, a mortgage pre-approval doesn’t guarantee closing, so it’s also important that you continue to pay your bills on time every month. It only takes a single 30-day late payment to drop your credit score by as much as 50 to 100 points. Such a move would represent a significant shift in your credit profile. Remember, underwriters will re-check your credit report a few days before closing, so stay current on your obligations as you head down the home stretch.

Final Word

Getting a mortgage and purchasing a home is an exciting time, but it’s important that you take steps to avoid problems with your loan.

Ready to take the plunge? Contact the loan experts at Blue Spot Home Loans today to start your application.