Buying a new home is an exciting moment. After finally finding your home and entering into a contract, it’s time to go through closing. This is a critical period of the buying process. Any changes to your credit or job situation can delay closing.
Avoid compromising your mortgage approval by making these credit mistakes before closing.
Not keeping track of your credit
Don’t wait until you start applying for mortgages to review your credit report. The sooner you address any problematic credit issues – like a history of late payments, significant debt, or debt collection, the better since mortgage lenders may either offer you a less than ideal interest rate or deny your application altogether.
To avoid this, request a free credit report (you’re entitled to a free report from each of the three credit reporting agencies each year) and review the report for errors and dispute inaccurate information. You cannot remove negative actions, like late payments or delinquent accounts. Those will stay on your report for seven to ten years. You can still boost your credit score by paying your bills on time, not maxing out your current credit cards, and paying more than the minimum on your debts.
Falling behind on payments
Payment history is a big factor in determining your credit score. It accounts for 35% of your score calculation. It shows your ability to manage your debts and is the strongest predictor of the likelihood that you’ll continue to meet your debt obligations. Falling behind on your debt payments can decrease your credit score and could indicate that you can’t keep up with your bills. Setting up automatic payments each month will help you avoid missing payments.
Opening or closing new lines of credit
Some buyers are surprised to know they can still be denied a mortgage during closing after being pre-approved. That’s because mortgage lends do a final review of your credit during the closing process. If your credit report has drastically changed since you’ve been pre-approved, lenders may either increase the interest rate provided or, in dire cases, deny your loan altogether.
It’s best to maintain the status quo and avoid doing anything that could affect your credit history. Some things to avoid include opening new lines of credit or closing older accounts. These actions can lower your credit score during a critical time. So, play it safe and hold off on new purchases until after you’ve closed on your new home.
Increasing your current debt
Running up your current accounts with new purchases can also potentially doom your mortgage. Adding more debt will increase your credit utilization, which can negatively impact your credit score. Lenders want to make sure you’re not carrying more debt than your income can handle. Either use cash or wait to make any new large purchases until after you’ve closed, especially if you’ll be putting them on credit.
Moving money around
Avoid making large deposits or withdrawals while going through closing. Unsourced money moving through your accounts can raise red flags for lenders. This may look like you received another loan which can affect your debt-to-income ratio.
Don’t worry if you’ve received a bonus from work or tax refund; those can be easily verified. You can expect to provide proof to verify any unsourced money received, like a large monetary gift from a family member or business income in your personal income, is not a loan. This proof can range from a bill of sale, canceled check, or a paystub.
Changing jobs may be a good thing for your career but it could complicate your mortgage. Mortgage lenders look at your employment history to make sure you’ve maintained steady employment and income since that usually signals your ability to pay your mortgage. If you change jobs while going through the home buying process, lenders are not able to get a good idea of your stability, which makes them nervous. If possible, hold off on making any job changes until after you close.
Don’t sabotage your mortgage by making one of these mistakes. If you’ve planned on buying a new home this year, taking care of your credit will make sure you’re in the best position to secure financing. It’s a critical step to make sure your closing process stays on track.
Ready to make the leap into homeownership? SummerHill is renowned for developing specialized single-family detached and multi-family housing communities in established residential settings throughout the San Francisco Bay Area. Visit us at SummerHillHomes.com to learn more about our new home communities, get pre-approved by our preferred lenders, and schedule a private tour today.