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Applying For a Mortgage? Here’s What You Should Avoid Once You Do

The home-buying journey is pretty thrilling, but it’s also when there are a lot of wheels in motion. 

Qualifying for a mortgage loan is a complex process that involves a deep dive into your current financial situation, employment, and credit history to determine your ability to pay it back.

After submitting your application, you’ll enter the contingency period while your loan is going through review. This is a great time to do things like getting a home inspection and getting a title search performed (in Illinois, and other “attorney states”, your lawyer will handle the title search.) 

However, it’s a terrible time to do certain other things that you might not even be aware of. Let’s take a closer look at what moves not to make right after you’ve applied for a mortgage. 

Changes in Employment

Anyone who feels the pull of entrepreneurship should follow their dreams and start their own business empire. 

Just not while your loan application is going through the approval process

Your lender wants to ensure that the risk they’re taking by investing in you is protected. Your ability to repay your mortgage is their number one consideration. If you jump from a guaranteed compensation plan to self-employment, freelance work, or a commission-only position during the review period, you could find your dreams of homeownership in the dust.

With few exceptions, self-employed borrowers need two years of tax returns to use their income toward mortgage qualification. 

Moving laterally or increasing your opportunity in the career stream isn’t necessarily a deal breaker, another salaried position may be a boon, but always talk to your loan officer about any changes in employment during the loan process.

Any shift in your status could alter your eligibility for a mortgage, so keeping your lender in the loop is a key factor toward your success. 

Big Spending

Another important factor in determining your mortgage loan worthiness is your debt-to-income ratio (DTI). Prospective borrowers who have a too-high DTI could have trouble making their mortgage payments and are typically not approved. 

Making large purchases, such as automobiles, major appliances, or lavish vacations can increase your DTI and bump you out of an approved bracket. If you need to bring the ratio down, the best way to do this is to pay off your debts. 

Many hopeful buyers can benefit from credit counseling, debt management plans, and other types of financial literacy initiatives before applying for a mortgage.   

While it’s tempting to go out and buy all new furniture for your soon-to-be home, don’t do it. Spur-of-the-moment spending sprees, while you’re in the middle of applying for a huge loan, are not a good look and may cause your application to be rejected. Once you’ve closed on your purchase, then evaluate your accounts and make informed decisions about your furnishings spend.

Unbalancing Your Books

It’s also crucial to ensure your bank accounts and current payments are in perfect working order. Making all of your payments on schedule is good for your credit score as well as your loan application. 

However, don’t change banks or close any accounts while your application is being processed. Applying for a new credit card right now is also a big no-no. You want to avoid any and all changes in your FICO score during this timeframe. 

No matter what it’s for, co-signing a loan for a kid or family member can also be a red flag to lenders, as well as unexplained large cash deposits. Your mortgage provider needs to be able to accurately determine your debt and track your assets in order to approve your loan. 

Stay the course and keep your chin up, and you’ll soon enjoy all of the benefits of being a homeowner.

Making Major Life Decisions 

Getting married, having a baby, or adopting a child are all incredibly joyous occasions. 

Other life transitions, such as finalizing a divorce or assuming guardianship of an elderly relative, can also sometimes affect your ability to get a mortgage loan. 

But they’re ones that should ideally wait until after your mortgage loan is approved and you’ve closed on your new place. While the miracle of birth waits for nothing, wherever possible, everything else should move to the back burner until the closing process is complete..

Light at the End of the Tunnel

It’s easy to feel overwhelmed by all of these stipulations of what to do and not do during the mortgage underwriting process. 

But the time will pass quickly as you work with your real estate team to schedule inspections, contract reviews, walkthroughs, and other exciting steps in the journey.

Keeping your application and financial documents as accurate as possible and avoiding any changes in your circumstances will ensure you have a smooth closing process and get the keys to your new home that much faster. 

If you’re ready to explore your financing options for becoming a homeowner or buying an investment property, I can help — reach out today!


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