At this point, you probably know the list of things to do and not to do before applying for a mortgage. There are also certain actions involving your credit, finances and employment which can affect your credit score and which should wait until after closing on your mortgage. Avoid making the following seven mistakes between application and closing to keep your loan on track.
Quit or Change Jobs
Your employment status is verified during the processing of your loan, and it will be reviewed again prior to closing. A critical component for determining how much you can borrow is your income (and that of any co-borrower), and employment usually has a significant impact on income. If you expect your employment to change at any point prior to or during the loan process, make that known to your mortgage lender to avoid any surprises.
Change from Salaried or Hourly Compensation to Commission-Based
The debt-to-income ratio (DTI) is also part of establishing the affordability of purchasing a home, along with consideration of other debts. If you receive a steady, predictable income, calculating your DTI is relatively uncomplicated. However, borrowers who receive wages based on commission often need to provide an extended history of their income to create an average of commission-based earnings over time.
Open a New Credit Card
Applying for a new credit card will lead to an inquiry on your credit report and could potentially lower your credit score. Should the credit score drop, the interest rate you receive from your lender could be negatively affected if the rate wasn’t already locked. Worse yet, a reduction in your credit score could completely knock you out of the qualifying range.
Forget to Pay Your Bills
Any late payment will show up on your credit report, and the result could devastate your closing. Because payment history accounts for approximately one-third of one’s credit score, a single thirty-day late payment could clip 60-100 points from your credit score. This is one of the financial “ducks in a row” you need to have!
With your approval in hand to buy a home, it’s a good time to buy some furniture on your credit card, right? Wrong! Making a major purchase with any type of credit will affect your DTI and, consequently, your credit score. Talk to your mortgage lender or loan officer before racking up any large balances on a credit card prior to closing.
Pay Off Past Due Bills
During the preapproval or loan commitment stage, it is standard operating procedure for a lender to request a credit report from the national credit bureaus. If you have any debts in default or past due which have been handed over to a collection agency, your lender will make certain that you are aware of them.
Prior to making any payoff, however, wait for a go-ahead from your lender. This is because payment for an old bill that went to collections brings a discrepancy to your current credit and can result in a significant reduction in your credit score. During the underwriting process, any bill in collections will most likely become a condition to be resolved prior to closing.
Make Random, Undocumented Deposits into Your Bank Account
During the verification phase of the loan process, your lender will request the past sixty days of your bank statements. Underwriters will take another look at your current assets and bank records prior to closing. Should there be any unusual deposits, you will need to explain them and provide documentation as to the source of the extra funds.
If you are unsure about making a final decision that could affect your home loan, talk to your Compass loan officer right away to avoid any mishaps before closing. For more information about home buying and financing, download our free handbook, Mortgage 101.