When it finally comes time to start looking at different mortgage lenders, you want your finances to look like they are in order. At this point you may have sought out financial advice from mortgage lenders or credit repair professionals to get your portfolio and credit score in order. However, sometimes in hastiness people do things with their finances that may seem like a good idea, but can actually hurt them when it comes time to sign on the dotted line. As you get ready to take the plunge, here are some things to avoid in the time leading up when you apply for a mortgage and during the process:
Open a new credit card account – This applies to a second credit card to supplement your original or the ones you can apply for at retail stores. Even though the allure of a card with a lower interest rate is tempting, getting another credit account will throw off your credit score and make the lender worry about your defaulting on your loan. If your credit score has improved enough to affect your interest payments and you’ve been making consistent payments for a period of time, consider speaking with your lender about getting a better deal. They will want to keep your business and may reward you for your judiciousness.
Transfer funds from one account to another – If you move funds suddenly, lenders may worry that you won’t have enough in your account to cover costs every month, particularly if you move funds away from the account you give them in the application process. The lenders may also question your financial stability if you appear to be moving funds around.
Close an existing credit account – Even if you had bad credit on your original card at one time, it’s not necessarily a good idea to completely close the account when being considered for a mortgage. If you close the account, the lenders will change the average age of your credit accounts and may ding your score. If you decide to get a new card and get rid of the old one, you will have to start all over building up good credit. Pay your card down and leave it active, as this can actually help boost your credit further.
Change jobs – Lenders will want pay stubs from your current position to make sure that you would be able to make payments regularly. If you suddenly change jobs (even for one that pays more), you start you probation for the new position and shake a lender’s confidence in whether or not you will be able to hold the job to pay the monthly payments on time.
Taking on new debt – Even if you can afford it, it’s all about budgeting in the eyes of the lender. If you were to add a new car payment for example, there may be a chance that one day you’ll go over budget and miss a payment in the future. Taking on more debt may also strain your credit and inadvertently lower your score.
Get a new bank account – This can look like unusual behavior to lenders, even if you’re establishing a new account for a perfectly legitimate reason such as paying for the mortgage itself. However, on paper it’ll seem strange to a lender that you will need an additional or completely new account; they may think that something happened your original account that may negatively affect your finances.
Changing insurance companies – Like changing anything else in your finances suddenly, this can make lenders wonder about your new payments for a new insurance premium and how that will affect your ability to pay for the mortgage each month. It may also make lenders wonder what was wrong with the other insurance company for you and how you’ll behave with the lender. If you change your insurance after you secure a loan, always inform your lender.
Changing spending habits suddenly – Even if you think you’ll save money in one way or another to get approved, the lenders want to know your spending habits to know if you’ll be able to make the payments. If your habits suddenly change, or you start making payments late, lenders may think your spending habits are erratic and unpredictable.
Not consulting with the lender before you make any major financial decisions – This is probably one of the biggest factors that you should be wary about. If you have any uncertainty about what you should or should not do during the process, check with an expert to give you a realistic answer to whether you can add or subtract things from your finances.
The name of the game when applying for a mortgage is consistency through and through. Lenders want to know that your financial situation will be stable through the years in which you make payments. Restrictions got much tighter in the wake of the housing crisis, so make sure you’re keeping everything in order to be approved.