8 Ways to Kill My Loan Approval
You have found your dream home, secured a loan and signed the contract. Most likely you are on the top of the world and are ready to begin celebrating! After popping open the champagne, you set out on a shopping spree to furnish your new home. What you may not know is that something as simple as purchasing a new sofa could put your loan in jeopardy of falling through BEFORE closing on the home. Let’s take a look at a few of the ways you can kill your loan approval before closing.
Moving a large sum of money into your account
Don’t transfer large, random amounts of money into your bank account without any documentation. This can raise flags as to where the money is coming from, and cause the loan officer or underwriter to question if it is actually yours or just an attempt to show more money in your account for the goal of a higher loan approval.
Keeping cash at home
This is not a good idea if you plan to get a home loan. You want your financial picture to look as strong as possible. So if you are lucky enough to have piles of cash at home and are relying on that money to be part of your real estate purchase, make sure you get those deposited in your bank account at least a few months before you even try to apply for a loan. Lenders will want verification of the source of those funds.
So if you want to improve your chances of looking good to a potential lender and intend on using this cash in your transaction, do yourself a favor and deposit the money. Lenders can't properly attribute cash to you as an asset if it is not in a bank. They review bank statements to look for red flags.
Another quick reminder: you should definitely keep cash aside for moving expenses and furniture so that you don't increase your credit card spending instead while your loan is in process. That's a big red flag too.
Opening or closing credit cards
It is best to not open or close a credit card because of the potential hit it could make to your credit score. You want to stay on very low-radar regarding any changes to your finances before close on your home. We know the 20% off is daunting, but believe us it’s worth waiting!
Changing jobs after you apply or at least 30 days before you apply
The bank that is considering your loan wants to see stability, which includes pay stubs to prove your salary. If they see you changing jobs at such an important time, it will cause concern in your ability to maintain the salary needed in order to pay your mortgage. This is not to say that switching from a part-time to full time job, or to an opportunity that pays a higher salary is frowned upon.
But, it may slow down the whole loan approval process due to documentation. Bottom line, if possible stay put in your job until all approvals are final. If you do get a shiny new offer in your same industry- talk to your loan officer before making any changes to your income stream - it may be okay to make that move if you are staying in the same field.
Making a major purchase- especially on credit cards
It can be hard to wait until after your closing to start shopping for furniture to fill your new home. But it is a bad idea to take on any additional debt while your loan is being approved. Even once your loan has been approved, you may have been on the edge of approval and that one additional purchase put you over the line. The purchase does not have to be as substantial as a car; a common home purchase can even be dangerous. To be safe, do not take on any more debt than you had when you applied for a loan. Just hold off until after your closing to purchase that new living room set or big screen TV!
Overdrawing your checking account
Keep a very close eye on your accounts and make sure that you do not overdraw any of them. This can be a sign to the bank that you are struggling with finances or that you are careless about how your money is used. Again, this can be a red flag to the bank when considering loaning you money.
Making late payments
Do whatever is necessary to make sure that you do not forget a payment. Set reminders on your phone, set up online bill-pay or make use of an old fashioned calendar. If a late payment hits your records before closing on your home, the results can be very bad. Your payment history makes up about one-third of your credit score so you can see where even one late payment can make a real impact on your credit score.
Co-signing on a Loan
While co-signing on a loan can be a risky decision at any time, it is an especially bad idea while applying for a loan. This plays into the “do not take on additional debt” rule, but worse in that you are taking on someone else’s debt. Even if the person you are co-signing for promises they will not fall behind or miss a payment, co-signing is definitely something to stay away from when going through the loan approval process.
Remember if in doubt, don’t – always check with your real estate agent if you are uncertain about a decision prior to closing on your home. Don’t have an agent, or still deciding on a lender? Nestiny can connect you with screened and trusted individuals when the time is right. Following these financial guidelines prior to closing on your home will save you any unnecessary stress or heartbreak, making sure you land your dream home!
Want more homebuying advice? Nestiny is a great place for homebuyer education and to help you gauge how ready you are to buy a home. Journey Homeward allows you to enter all of your wants and needs while the True Affordability Tool will break down your budget, showing what you can comfortably afford. You will also receive a free Ready Report that is personalized based upon the information that you entered. This report will give you a vital head start in the home buying journey, saving you valuable time and money.