Closing on a Mortgage: 8 Mistakes to Avoid
- Homebuying & Homeownership
When it comes time to buy or refinance a home, anything that could create uncertainty in your finances may have an impact on the interest rate and structure of your mortgage. It’s important to show stability and consistency in your financial household.
To maintain your financial stability, here is a punch list of 8 things to avoid in the year leading up to your mortgage closing:
1. DON’T take out a new loan or line of credit. This is particularly important for big-ticket purchases, like a car, a boat or an expensive piece of furniture, but smaller loans and lines of credit can also hurt because they all affect your credit standing.
2. DON’T quit your job, change companies or switch career paths. Establishing a reliable and consistent income stream indicates your ability to make timely payments. Any change to your employment will make your income less predictable, especially in cases like moving from a salaried position to a commission-based position or becoming self-employed.
3. DON’T close lines of credit or credit cards. While it may seem counterintuitive, closing a credit card or line of credit may inadvertently raise your debt-to-credit-limit ratio, which can affect your credit and ultimately hinder a mortgage approval or result in a higher interest rate. In other words, closing one of these accounts would reduce your available credit and negatively affect your credit utilization. From the lender’s perspective, the lower the debt-to-credit ratio, the better.
4. DON’T pay your bills late. Whether you can qualify for a mortgage after paying late in the past year depends on several factors. If you have a strong credit history aside from some recent late payments, you still may be able to obtain a mortgage loan, but you may not qualify for the best rates and terms available.
5. DON’T make large deposits or move large amounts of money between accounts. When large sums of cash are deposited or transferred between accounts, especially just prior to applying for a mortgage, it can bring the stability of your finances into question. If you do make a large deposit or transfer, be prepared to provide documentation that clearly establishes the source of those funds.
6. DON’T initiate new credit checks. Too many credit inquiries over a relatively short period of time are never a good thing for your credit score. Even if you have excellent credit, resist applying for ANY type of credit card 3-6 months before applying for a mortgage until after loan closing, especially those tempting and seemingly benign offers at your favorite retail store.
7. DON’T cosign on a loan. That debt shows up on your credit report and is typically considered a debt that you owe, even if you're not listed as the primary account owner. So, it will be factored in when your debt-to-income (DTI) ratio is calculated. A DTI that is too high could hinder your ability to secure a mortgage or other types of loans.
8. DON’T lose access to bank accounts. If you move accounts or close an account, you probably lose access to your old account’s recent statements. Retaining copies of your statements is necessary to prove your income, spending or identity when applying for a mortgage. Typically, C&N asks for two months' worth of statements, though it is not uncommon for some lenders to require information dating back six months, especially for those with complicated finances.
When it comes to home financing, stability and consistency is key. It’s best to not make any major changes in your finances before and during the loan process, unless specifically advised by your lender. Connect with your local C&N mortgage expert well before applying for a mortgage by visiting your local office, calling 877.838.2517 or visiting cnbankpa.com.