Smooth Sailing to the Mortgage Finish Line to Buy your Home

You have found the home of your dreams and now it's time to get rolling on the official financing application. That pre-qualification letter often gives buyers a false sense of clearance. It is important to remember there are things that could still change the financing approval for you. Here are some things to avoid to help you get to the finish line.

Things they should absolutely NOT do just before, during, and after applying for a mortgage.

1. Do not change jobs, quit a job, or start a business - Lenders like to see steady employment and verifiable income. Doing any of these things can at the very least require a letter of explanation, and could even entirely disqualify the applicant.
2. Do not co-sign a loan or lease for anyone - When a person co-signs for someone else, he or she is accepting responsibility and liability for repaying that loan in the event of default.  This impracts the Debt-To-Income ratio that your lender will look at. This added debt may push the DTI ration beyond the allowable limit with your lender. 
3. Do not finance a large purchase such as a car or a boat. Anything added to a borrower's total debt will affect the DTI. Car and boat loan payments affect it significantly because they are usually higher than minimum monthly credit card payments. This added debt could put a buyer over the limits for qualifying.  Important: This also applies to a car lease!  Monthly lease payments are counted in the DTI calculation.
4. Do not allow credit card balances to creep up (and don't apply for new credit cards either). Remember also that each application for new credit generates an inquiry into that person's credit report. Each inquiry can reduce a person's credit score by up to 8 points. Since credit scores are an important factor in determining a buyer's mortgage interest rate, a drop in the score can result in a higher interest rate.​ Lenders prefer to see credit card balances less than about 30%of their maximum limits - the lower, the better. This applies to getting credit ready for evaluation as well as after approval yet before closing. Most lenders will pull an updated credit report just before closing to make sure everything. "Maxing out" credit card accounts after approval but before closing can result in a reversal of that approval.
   
5. Do not buy new furniture, appliances, or other new home items on credit - Many buyers can't resist starting to buy furniture, appliances, and other new house goodies once they receive loan approval. As mentioned above, lenders pull another pre-closing credit report and review. Even if the purchase is a "one year with no payments" promotional arrangement, it will still show up as a debt when credit is pulled, and the projected minimum monthly payment will have to be counted in the DTI calculation. Wait until after settlement to budget for these larger household purchases.
   
6. Do not make large bank deposits or transfers without full documentation and a "paper trail" Remember that funds for down payment and closing costs need to be sourced prior to closing. This means that lenders want to see the account statements for where the money was held before the house purchase. When transferring money from one account to another, borrowers must create a "paper trail" to show the lender. If down payment and closing money come from gifts, bonuses, the sale of assets, or sources other than the borrower's regular paycheck and savings, letters of explanation are required. Basically, borrowers shouldn't be doing anything that would compromise, contradict, or raise questions about what they've already entered on the application and supported with documentation.

 
You have come so far and so close to owning your dream home. Don't make these mistakes and run the risk of losing it. Talk to your lender and discuss these and any other issues that could arise so that you can proactively work to avoid them.