Once you are approved for your home loan, packing up your house and preparing for the movers might set your mind at ease. But in reality, this is the time that you need to pay extra attention to your lifestyle and how you spend.
Although you have already made good on a down payment and disclosed your earnings history, a diligent lender will recheck your credit right before your settlement date.
Lenders will look to you to assure them that “nothing has changed.” Those exact words. Some precautions to consider before you finalize the big move:
- Avoid Applying for New Credit: You may be tempted to open a new line of credit, for instance at a home center or large retail chain, to furnish and update your new home. But just the act of applying for a new credit card can lower your credit score. Points can be shaved off your credit score, and if approved, a lender will be concerned that you will rack up debt and be unable to meet your obligations.
- Keep Current Credit Accounts Open and Current: Some might think that closing a line of credit that has been paid off is a good idea. Even if you transfer a balance to another card that may not be in use, or a new card with a zero interest balance may seem smart. But it can negatively impact your credit score. Wait until the closing is complete to change things around.
- Document Everything: Before you go to settlement a lender will want to see all your banking information, this means all your account statements. If there are inconsistencies with what is deposited vs. what you stated as your regular income, that may stymie the closing process. If you are saving cash for a home purchase or home improvement projects, place it all into one account before you apply for a mortgage.
- Don’t Run Up Balances: Lenders will look closely at your debt-to-income ratio upon loan approval. If you show that you take on more debt than you bring in at your current job lenders will see you as a risky prospect.
- Always Make Payments On Time and In Full: Lenders will highly scrutinize your history, particularly on paying bills. Consistently pay all your regular bills on time by arranging paperless electronic bill pay, so you will never miss a payment despite the stress of moving.
- Avoid Making a Large Purchase: When you move into a new neighborhood, one usually looks at this transition as a step up. You may be compelled to make a new purchase, say on a new car, to fit your new lifestyle. But wait until closing on the house. Even if you have been saving and can buy a car outright, lenders will see the rapid and sudden depletion of funds as a red flag. Or if you apply for a new car loan, lenders will see this as an additional burden and will think you may not be able to consistently pay both the car note and the mortgage.
- Wait to Make a Career Change: A move up the corporate ladder, though an improvement and a salary bump are welcome changes, they can also delay your settlement. Your lender will need additional time to check on your new income, and this may change your loan terms. Therefore delaying settlement.
- Sit on Your Savings: Your lender will verify all your holdings until the closing. They want to be sure that you are a sound prospect, plus you will need cash available at the time of the closing in case there are additional fees or other things that may come up unexpectedly.
To reiterate, the phrase “nothing has changed” is what lenders want to hear. So best to be honest and wait to make strides toward a new lifestyle, at least until AFTER you seal the deal.
Brian Pearl, P.A., Realtor®
The Pearl Antonacci Group | Lang Realty