Don’t Let These Financial Mistakes Ruin Your Mortgage Approval
When it comes down to it, applying for a mortgage is all about money.
In order to qualify for a loan, you’ll want to show that you’re smart with money. You’ll also need to show that you make enough money to get a loan for the home that you want to buy.
From the moment you get pre-approved and start searching for homes, your finances will be under scrutiny. If anything changes during that time, you risk being turned down for a loan altogether. In this post, we’ll cover some financial mistakes that can ruin your mortgage approval so that you don’t get turned down for a loan at the last minute.
Going On A Spending Spree
It can be hard not to spend money when you’re in the process of buying your first Knoxville home. In your new home, you may need new things like furniture, appliances, and decorations.
If you’re like many people, you may want to get this taken care of prior to closing so that they can be delivered the day you move in. Unfortunately, this can be a dire financial mistake that many first-time buyers fall into.
Initially, when you apply for your loan, you’ll show your bank accounts and assets in order to qualify. Any significant changes to bank account balances can raise a red flag to your mortgage lender. Even if you’re not dipping into your down payment, this can still sometimes hurt your overall loan approval since it can raise questions about your spending habits.
The general rule of thumb is to avoid any major purchases until after closing is done. If you absolutely need to make a large purchase, be sure to consult with your loan officer first. There may be ways of combatting the large purchase if your loan officer is aware of the large purchases.
Changes In Credit
Just as it can be tempting to spend cash on new purchases, it can also be tempting to apply for new lines of credit to purchase items for your home. When you need new appliances or furniture, it can be nice to have the 12 months to pay off those items interest-free.
Unfortunately, what many buyers fail to realize is that opening up new lines of credit can cause changes in their credit score. Oftentimes, when you open up a new line of credit, your credit score will temporarily take a hit. In addition, changes to your debt-to-income ratio can also cause problems with your loan.
If you were already borderline to qualify for your loan with either your credit score or debt-to-income ratio, making these large purchases can cause issues with the loan approval. The best solution to this problem is to avoid large purchases prior to closing. Save buying those appliances and furniture until after you’ve closed.
Changes In Employment History Or Income
Don’t change jobs or quit your current job during the loan approval process. Changes to your income or employment status can cause issues with loan approval.
Even if you’re making more money, this can cause issues with the loan approval process. For example, if you go from an hourly wage to a salary with bonuses, the change in the payment schedule can be problematic. Even when you’re making 25% more income with bonuses and commission, this can hurt your loan approval is you can’t show a consistent history of making this kind of money.
Big changes in employment or changes in your career field can raise questions about your financial stability. If at all possible, they to avoid making any major changes to your income and employment during the loan approval process. If there is no way to avoid it, be sure to give your loan officer a head’s up.
Making Changes To Account Balances
Major changes to your account balances or moving money around can also be a financial mistake that hinders your loan approval. From the time you apply for a loan to the close date, it is generally wise that you don’t move money around or make large deposits without consulting with your mortgage company.
During the loan approval process, avoid opening a new bank account or finally depositing that large check from your sweet Aunt Emma. If you do, you risk having to provide a paper trail for where the money came from and why it was deposited. To make the process easier on yourself, it’s generally best to avoid any of this during the approval process. Otherwise, you risk having to provide additional documentation that could slow or hurt loan approval. If it’s unavoidable, be sure to let your mortgage company know.
Are you thinking about buying your first Knoxville home? Are you unsure of where to start? Don’t worry – you’re not alone. We’ve helped countless Knoxville first time buyers buy their first home and we’d love to do the same for you. Shoot us a text, email, or give us a call today. Rick can be contacted at 865-696-9002 or via email at Rick@KnoxvilleHomeTeam.Com. Kati can be reached at 865-696-1888 or via email at Kati@KnoxvilleHomeTeam.Com.
Are you ready to start your home search? Visit our home search page to get started today. Or, be sure to keep up with our Knoxville First Time Home Buyer’s Blog to keep up with the latest information about buying your first home.