Buying a home can be one of the most exciting times in your life, but also one of the most stressful. Along with the stress of packing, cleaning, transferring utilities, etc. is the stress that comes with waiting for closing – the moment when your new home will actually be yours.
Typically, once you’re under contract for your new home you will have approximately 30-45 days before the home is officially yours. That’s how long it will take for your lender to process your loan. Remember, “pre-approved” is not the same thing as “approved.” During this time, your spending choices can derail the closing process, making your dream of home ownership go up in flames.
Lenders love stability. The best advice is to hold off on changing anything to do with your finances until after closing. Here are some common things to avoid during the closing process.
Do NOT Make a Late Payment on ANY Existing Debt
Your pre-approval is determined by a snapshot of your credit at a particular point in time. Your track record for paying your debts is documented by the credit report used for your pre-approval. Most lenders will request a new credit report for you one or two days before closing. Any late payment that shows up could be a red flag to the lender and cause them to delay or turn down the loan. To be safe, make all payments on time while waiting for your final loan approval.
Do NOT Make Big Purchases
If you’re thinking about buying or leasing a new car or buying furniture for the new house, now is not the right time to make that purchase. While you’re going through the closing process, you want to keep your finances as still as possible. Adding additional debts through big purchases could change your debt-to-income ratio and change the terms of your home mortgage or even drop you out of “approved” status. Withdrawing large amounts of cash for such purchases can have the same effect.
Do NOT Switch Banks or Move Money Around
Closing bank accounts and opening new ones can be a major red flag to mortgage lenders. To lenders it can look like you’re trying to shuffle funds around to navigate hidden debt that isn’t recorded. Remember, the theme here is consistency. Whether you’ve been with your current bank for six months or six years, stick with that bank until the loan closes.
Do Not Close Out Any Debt Account
Paying down debt and closing out accounts is usually a good idea. However, if you’re in the middle of the loan process that’s not the case. Closing out a credit card for example can lower your credit score.
One factor of a credit score is your ability to borrow money quickly, also called “capacity.” If you have a credit card with a spending limit of $1000 and a balance of only $100, that means you have the capacity to borrow $900 in the event of an emergency. However, if you pay off that card and close the account, you then lose the capacity to borrow on it. The capacity reduction can hurt your credit score.
Do Not Make Any Unusually Large Deposits
You may be thinking, “more money in my account is a good thing, right?” Wrong. Just as your credit report shows a track record of your payments over time, your bank account also has a track record. The mortgage underwriter will review your checking and savings accounts to see if there are any larger-than-normal deposits leading up to the purchase. Avoid any large deposits that don’t coincide with your normal banking habits. If you’re going to receive money from a relative or friend to help you with your purchase, that has to be disclosed at the beginning of your loan process.
Do NOT Start a New Job
Your current income, job history, and length of time at your present employer are all vital to getting approved for a mortgage loan. Even if you’re going to be paid more at the new job, wait until your mortgage loan is closed. Move into the home before switching to another company!
Summing Up
After you’ve received your mortgage pre-approval, continue on with your life as if nothing has changed. Keep making payments on time, don’t shut down any accounts. Don’t add any new debt, and don’t move your money around. If you remain consistent with your finances, this will keep you prepared for your final approval and loan closing.
Contact the Donnelly Group
Buying a home in metro Phoenix? The Donnelly Group has the market expertise and partners to help you. Reach out whether you are at the start of the process and need guidance, or are already pre-approved. We are happy to help!
Please don’t hesitate to contact our team at 480-792-9700 or by email.
