5 Ways to Mess up your Loan Approval

Today I want to shed some light on a subject that I think is very important to home buyers.  When you buy a home, there are several stages of the financing process.  Early in the game, you get a pre-approval.  Basically, a lender is going to check your credit, verify your income, and give you an idea of what you qualify for in a loan.  This pre-approval gives you an idea of what you can afford, and also serves as proof of funds when you make an offer on a property.

Typically, within 5 days of having a contract accepted on your purchase, you need to go back to your mortgage lender for the official loan application.  The loan approval can take anywhere from 30-90 days, depending on the type of loan you are looking at.  At the end, before final loan approval is given, your credit will be checked again.

This final credit check is where some buyers can get into trouble.  Think about what happens when you buy a house.  You might need to start shopping.  You go to the store, buy some new furniture and appliances, and have them ready to deliver to your new home.  Sometimes people even go out and buy a car, or a lawnmower, celebrating their deal, anticipating the money from the sale of their house.

The problem is, unless you are paying cash, all these transactions are going to show up on your credit report.  In the case of the new car, you are basically adding to your monthly expenses, which might even throw your debt to income ratio so far off that you no longer qualify for your loan.

So, the rule is, once you apply for a loan, do not do anything that could affect your credit.  Any of the following could damage your chances of getting loan approval for your new home:

• Applying for new credit, whether it be a credit card or a payment plan for your new couch.  
• Withdrawing large amounts of cash from your bank account.  
• Depositing large amounts of cash into your bank account.  
• Missing a payment on something else, or paying a bill late.  It is especially important to keep on top of all of your bills during this time!
• Making a big purchase using a current credit card

What is a home buyer to do if you need to make big purchases?  

• Use cash.  Either start taking out smaller amounts of cash before your loan application, or buy yourself some gift cards to use
• Wait!  Once you are in your new home, there is plenty of time to get your new things together
• Ask a relative for help.  
• Check with your loan officer before you make any purchases, and have them check to make sure you aren't going to mess anything up.  

This information is often surprising to buyers, and I always make sure to share it with my clients.  I hope you find it helpful!  Did I miss anything?  Leave me a comment if you have some other advice to share.  

Jennifer