Oh the highs of getting pre-approved for your dream home (even if you haven’t picked it out yet!). You’ve done a little (or maybe a lot) of online research – mortgage calculators, dream homes, articles about upsizing, downsizing, and right-sizing for your very first mortgage. You’ve consulted with friends, relatives, and real estate agents. Now, you’ve jumped right in and got your mortgage pre-approval. Running the gauntlet to get the lender all the information they needed to get you to the first milestone wasn’t easy… you’ve given them w-2’s, tax returns, bank account info and now you have a bona fide pre-approval. You’re all excited to buy your home! But wait, remember that you don’t have the money until the loan funds at the close of escrow and the county records the deed.
Today, I want to remind you that there are certain things inside and outside of your control that can turn that pre-approval into a nixed-approval. It can be embarrassing and it can cost you money, but there are some traps you can avoid so follow along…
1. Changing Employment – Common! You accept a new job after you’ve been pre-approved for a loan because it’s a better opportunity. It may come with higher pay and better benefits, but because your pre-approval was based on the last job you had, the entire equation changes. Check with your mortgage broker before you do it to make sure that it’s not going to make you unqualified. Lenders are looking for job stability. Sometimes if it’s in the same line of work, it won’t be a problem but please check with your lender FIRST! It may seem obvious, but let’s not leave out that losing your job is going to impact your Capacity to repay too.
2. Applying for other loans – Can you say “new car” or “new furniture” for your new house? Let me say it now so you don’t have the embarrassment later, they are going to check your credit more than once. Get in your home first, then go shopping. Okay?
3. Making large deposits that you can’t document – In getting the pre-approval, the lender is IN your business, specifically checking your bank accounts (savings and checking) for your spending habits. If you have a significant deposit in a statement that doesn’t match up with your average income, it can throw things off. If you are getting gift monies from family, making any big sales like selling a car, contact your lender and find out what you need to explain it.
4. Getting a divorce – If your pre-approval is for you and your spouse, then it’s only good for the two of you being married and buying the home because the calculations were done that way for both assets and liabilities (debt).
5. Forgetting to pay your credit cards – One of the major components to the pre-approval process is how you handle your credit, right? Refer to #2 above – they WILL check your credit again before you close. One late payment may cause you to be disqualified. Did you know that your credit history makes up thirty-five percent of your credit score so make sure that you don’t jeopardize your pre-approval with any neglect of your current debt obligations.
6. Closing a credit account – Seems counter-intuitive, but closing an account will change the inputs to your credit score. Your FICO credit score is made up of your credit history, the length of your credit history, and amounts owed. You’ve spent time grooming that score, so know before you blow it. Again, talk to your lender. It may be be fine.
7. Paying your rent late – On-time rent payments are a factor of your credit worthiness. You have shown you pay on time. That’s what a lender wants to see when they qualify you for a loan. Don’t get lazy at the end because it could mean you’ll be renting for a lot longer than you wanted to.
8. Skipping your last mortgage payment – Consider the scenario: You’re selling your house and you’re buying another which is probably contingent on the first house selling. Say that the house you’re selling is going to close a week after your mortgage payment is due and you just figure that it’ll be paid off in a week so what’s the big deal? Well, the banks think it’s a big deal and can mark you as “late” which snowballs into possibly no longer qualifying to buy the new house or getting hosed with higher interest rates because your credit isn’t as clean as it WAS.
9. Depleting your savings – You qualified with a certain amount of savings and so it needs to be there before you close. Yes, it’s part of the “equation” of being approved. Spend it on the party after you’re in the house!
10. Committing fraud on your application – If you were less than honest, it’s likely you will be found out. Lenders scrutinize your application much more since the mortgage meltdown. You’re ability to repay a debt is being vetted.
In the end, your pre-approval isn’t set in stone. It’s not guaranteed. It’s simply the lender’s initial assessment. Things can change. For those things within your control, stay on top of it. Don’t make any financial changes without first consulting your lender and you’ll have nothing to worry about.
Thinking about buying or selling your home? I love helping people reach their real estate goals and going the extra mile for people. I can be reached at firstname.lastname@example.org
I spend time researching and writing about topics that people should know about real estate.
Hope you have a Happy Easter!