One thing you might not know as a new homebuyer is this: Your loan application process is a delicate thing.
The period of time before you get approved for your mortgage is full of pitfalls for the unwary homebuyer. Loan officers are watching your bank account, your credit score, and several other factors and will be ready to pull the plug on your loan at a moment’s notice.
I’ve seen some cases where a deal is all set to go through and at the last minute — the loan fails.
If you want to avoid that kind of drama, here are five ‘no-no’s for you while your loan is being processed:
- Cosigning: Don’t cosign on any car, apartment, or other obligation. If you’ll need to do this for someone, plan around your loan application process and cosign after.
- Student Loans: Whatever you do, don’t take out a student loan while your mortgage officer is watching. Student loan debt may increase your debt-to-income ratio, affecting your ability to qualify for a mortgage or the rate you can get. FYI, missing a student loan payment can lower your credit score, but consistently paying on time can bolster it.
- New Credits Cards: Every time you apply for a credit card, an inquiry will be noted on your credit report. Having too many credit inquiries (for example, for credit cards, personal loans, or home loans) may lower your credit score, which can hurt your home loan application.
- Job Change: Because underwriters will request at least two years of work history, changing jobs during or shortly before going through the mortgage application process will raise a red flag to your underwriter – especially if you switch from a higher-paying job to a lower-paying one or switch job fields
- ANY New Debt: Yes, even financing a thousand dollar mattress can jeopardize your loan if you’re not careful. So make sure that you can commit to leaving your debt-to-income ratio untouched before you begin your home loan process.
With these ‘Don’ts’ in mind, you’ll be able to avoid a wide variety of things that could derail your loan. However, the most solid approach to the home-buying process is to get a good realtor on your team who can coach you through the process.