Mortgage Advice

9 Things that Could Make or Break Your Mortgage Loan Application

April 23, 2015

So, you’re thinking about buying a house. Congratulations! Shopping for a home is one of the most rewarding and exciting times in your life.

By now, you’ve probably spent a considerable amount of time weighing the benefits of homeownership and perhaps you’ve even started searching for the perfect house.

If you haven’t done so already, the first thing you’ll want to do is get pre-approved for a mortgage loan. Having a pre-approval letter in hand before you start house hunting is powerful for several reasons. Not only will it give you favor with real estate agents and more leverage with sellers, it will give you peace of mind when it comes time to make an offer. That’s because it’s more than just a piece of paper—it’s a commitment to lend.

You see, by providing your loan officer with all the necessary paperwork needed for mortgage application at the beginning of the home buying process, they’ll be able to take a snapshot of your financial picture and confidently determine whether you’ll qualify for mortgage financing. Once you’ve acquired a letter of pre-approval, you’re pretty much guaranteed a loan—pending any changes in your financial situation.

A lot can change from the day you get pre-approved to the day you actually apply for a mortgage loan. As you’re going through the home buying process, you’ll want to be on your best financial behavior and avoid taking any missteps that could cause your mortgage loan application to be denied.

If you want to be an attractive candidate for mortgage financing, pay close attention to the following factors that could make or break your ability to buy a house.

  1. Be upfront about your financial situation: You and your loan officer are a team. They are here to help find the right loan for you. However, in order to do their job effectively, they need you to be open and honest about all aspects of your financial situation. It’s in your best interest to disclose any information that you think could potentially impact your mortgage application—this includes past bankruptcies, foreclosures, short sales, divorce settlements, child support, etc. When presented with this information upfront, you’ll avoid hassles that could arise later in the process and your loan officer will be able to create a plan to get you into the right loan program.
  2. Maintain good credit: It’s a common misconception that lenders only check credit at the beginning of the application process. Contrary to popular belief, lenders will actually check your credit before closing to ensure there haven’t been any changes in your credit history. In the spirit of maintaining good credit, here are five best practices to follow.
  3. Don’t make any major purchases: Although it can be tempting to go on a shopping spree for furniture for your new home, it’s best to avoid making any large purchases until after you’ve closed on your loan. Any changes in your spending habits could raise a red flag and hinder your chances of getting approved.
  4. Don’t open new lines of credit or take on more debt: In order to paint a stable financial picture for lenders, you need to demonstrate that you can use credit responsibly. Do not open more credit cards and don’t take out any new loans for big purchases that need to be financed. This will only increase your debt-to-income ratio and decrease your chances of getting approved for a loan.
  5. Don’t change bank accounts: At the time of application, you will be required to provide your lender with two consecutive months of current bank statements. This information will be used to document the source of funds you will be using to pay your down payment and verify your ability to repay the loan. To make the underwriting process as smooth as possible, it is best to avoid changing banks until after your loan has closed.
  6. Avoid overdrafts: Any overdrafts from your account could raise a red flag for lenders and signal instability. Keep a close watch on your spending and balance your checkbook closely.
  7. Don’t make large deposits without checking with your loan officer: Any deposits other than your normal paycheck could raise a red flag and may require additional documentation. If you will be receiving a gift of money from a family member to fund the purchase of your new home, follow these tips to ensure the deposit is documented correctly.
  8. Don’t change jobs: When applying for a loan, it is vital that you can verify a stable source of income that will be used to repay the loan. If you’re thinking about changing jobs or making a career move, wait until your loan has officially closed before pursuing new opportunities.
  9. Don’t co-sign a loan for anyone: When you co-sign a loan, you assume debt, even if you are not responsible for the payments. It still increases your debt-to- income ratio and affects your ability to borrow money. For this reason, it is best not to co-sign a loan for friends or family members.

When you apply for a mortgage loan, there are several financial factors the lender will evaluate. If you follow these best practices, you’ll set yourself up for a smooth and successful mortgage application. Remember, if there are any major financial changes that could impact the status of your mortgage loan application, it’s always best to consult with your mortgage lender first.

Have any questions about the information contained in this post? Serious about buying a house and want to start the pre-approval process? Send us a message! We’ll help you start your journey to homeownership on the right path.