What You Shouldn’t Do After Your Mortgage Application

Unemployment claims have jumped recently, painting an ugly picture for the economic landscape in the United States. This is a good indication that the pandemic is still raging across the nation. However, in spite of today’s dire situation, the future still looks positive. The federal government is about to spend a lot of money and resources on efforts to vaccinate everyone and boost the economy. The mortgage market is taking notice of these efforts. Anticipating a brighter economic future, interest rates and thus mortgage rates have begun to increase. In an effort to avoid missing out on mortgage rates that are still near historic lows, many are applying for home loans right now. However, just because you have completed your application or have even received an approval, it doesn’t mean you’re out of the woods, yet. There are still some things you shouldn’t do after your mortgage application. 

Why You Have to Be Careful After Applying for a Mortgage

Once you finish your mortgage application it is easy to let your guard down on your finances. However, you need to be careful after getting approved for a home loan. Your mortgage can still be put in jeopardy all the way up until you close on your new home. Lenders only approve home loans after a significant review of your credit and financial situation. Any big changes to your credit, income or financial picture can cause lenders to reevaluate your loan application. That is why it is very important to demonstrate financial consistency between the time you apply for a mortgage all the way through closing. The team at Peoples Choice Mortgage wants to give you a heads up on things to avoid until you officially close on your new home. 

Do Not Change Bank Accounts

Changing bank accounts after you have applied for a mortgage is not good for your loan. Underwriters need to be able to verify your financial situation. This means they need to be able to monitor your accounts for fluctuation in cash on-hand. If you change accounts, this makes their task a lot more difficult. It also raises red flags as to why you would need to change accounts. If you do have an important reason as to why you need to change bank accounts, please speak with your lender first. This can then make the job of the underwriters easier because they will already have any relevant information regarding the reason for the change. 

Do Not Make Any Large Cash Deposits

Making large cash deposits into your bank account before your house closes can be a red flag for loan underwriters and can put your loan in jeopardy. All income has to be properly sourced by your lenders. First, you are required to report all of your income on your mortgage application. Large cash deposits could be a sign that you did not accurately fill out your application. Second, lenders are also required by law to make sure that all income is legal. Cash deposits make this much more difficult for lenders to verify. If you do find yourself in a situation where you cannot wait to make a large deposit until after you close, speak to your lender. They can tell you what kind of documentation you need to provide in order to make sure your mortgage goes through without a hitch. 

Do Not Make Any Large Purchases

Making large purchases after you have applied for a mortgage is something that should be avoided. Even if you have the cash, do not buy a car, boat or anything else. Lenders are evaluating your financial stability. Any cash that you have in your bank accounts should stay there. This proves to the lenders that you have cash reserves available to pay your mortgage in case something happens to your income. Making a large purchase could signal that you are financially impulsive. If you have had your eyes on a new car or some other large purchase, simply wait until you close on your home. 

Do Not Co-Sign Loans for Other People

Co-signing on a loan for somebody else is another thing you should avoid after you have applied for a home loan. Even if you will not be making the payments for the loan, it can still disrupt your mortgage application. Lenders are less concerned about who is making the payment and more concerned about who is responsible for the loan if the payments are not made. If by some chance the person you co-sign for falls behind on loan payments, you will be on the hook for the loan. Being a co-signer will also impact your credit score. It will impact your credit score as if you were applying for a loan on your own. 

Do Not Apply for New Credit

Make sure you do not apply for any new credit accounts when before you have closed on your new home. Lenders take into your credit score, as well as your debt-to-income ratio. A new credit account can lower your credit score because new credit applications are docked by credit bureaus. Also, taking on more credit can impact your debt-to-income ratio. Underwriters make a decision on your loan based on whether or not they think you are likely to make all your payments. Taking on new credit accounts can potentially make them think you are overextended and have too many creditors. 

Do Not Close Any Credit Accounts 

Just as you should not open any new credit accounts after you apply for a mortgage, you also should not close any accounts. Closing a credit account could potentially decrease your credit score. The biggest factor in calculating your credit score is how much of your available credit is in use. Closing an account would decrease the amount of your total possible credit. If you do not decrease the amount in use, then that would show a high credit usage rate. It is best to just pay off the balances of the account and keep them open. You do not have to close an account in order to not use that account. 

Final Thoughts

Buying a home and taking on a mortgage is an important decision and can change your life for the better. One of the best ways to build wealth is to own a home. Once you have filled out an application and been approved, you are so close to the finish line that you shouldn’t do anything to risk it. Between the time you fill out your application and the time you close on your house, the best thing you can do is demonstrate financial consistency. Keep your accounts in good standing, make your payments and avoid taking on any extra debt. Once you close on your home, you can then undertake any big financial decisions that you were considering during the application process. 

If you are interested in taking advantage of today’s low mortgage rates before they go any higher, contact us! We would love to walk you through the mortgage application process and give you a complimentary mortgage qualification assessment.