The top 5 do’s and don'ts after a mortgage commitment
Congratulations! You are pre-approved..now what? Upon receiving your application, your broker or an underwriter evaluated your full income and credit score.. Your file then was submitted to a lender for pre-approval. Then the more detailed compliance starts. If there are changes to your circumstances, the lender will flag your account for re-evaluation - we want to avoid this scenario, especially when tight timelines are involved. Below are some tips you may find useful while you wait patiently for your file to close and funds to be released:
DON'T apply for new credit. This one is very, very important! While being excited to get into your new home and get that perfect sofa, getting a credit card or those tempting deferral credit cards can negatively affect your credit score and change your debt-to-income ratio. After pre-approval the lender will see that change and can deny your pre-approval. DO pay all your bills on time. Just one 30-day late payment on a loan or credit card can kill your mortgage approval. Paying attention to that is vital.
DON'T start a new job. Changing jobs or becoming self-employed after you are pre-approved can affect the lender's decision to give you final approval. DO start a new job - only if job change is unavoidable. Make sure you speak with your broker ASAP. Life happens, we know that, but we will need to get all the details beforehand to discuss the change with the lender. That goes for any changes including an increase or decrease in income, a change in marital status or household size.
DON'T make any big purchases. Absolutely no big purchases before you have signed all the documents and have the keys to your new home. You’re going to need that cash for closing costs. DO create a money reserve. If your approval requires you to have money reserves for closing costs then avoid the urge to shop!
DON'T pay off all of your debt completely or close revolving credit accounts. If you pay off all of your debt after you’ve been pre-approved, your lender will want to know where that money came from. And even if your revolving credit is at a $0 balance, closing it could negatively affect your credit score. Not only does it prompt a ton of extra paperwork because the lender will want to know how you were able to pay off all your debt it will change your percentage of available credit, credit history, mix of credit and account payment history. DO keep paying the bills as usual and wait until after you’ve closed. Unless it is a requirement to have some debt paid down before your approval, just wait. Any debt you want to close out or tidy up can happen after the deal is done. You’ll be busy focusing on other things so keep everything even keel until those keys are in your hand!!
DON’T acquire any NSF (Non-Sufficient Funds / overdraft). Make sure the funds in your bank account cover anything being paid out; mortgage lenders look at these fees as an inability to manage money and a mortgage risk factor. DO keep a paper trail. Make sure you keep a record of all deposits made into your accounts after you’ve been pre-approved. If you received a gift from mom and dad for the down payment we need to have that documentation. Random large deposits could raise a red flag that you’ve borrowed money from somewhere else, which could have an impact on your debt-to-income ratio. That affects your borrowing. So please keep all your receipts and statements until your purchase is finalized.
These are our top 5 Do’s and Don’ts after approval, but just to add one HUGE topic is communication. Don’t ever hesitate to call or consult your broker. When in doubt or feel the urge, CALL! There is no judgement. Remember, we are going to bat for you and the last thing we need is to be blindsided. Keeping the flow of information back and forth helps foster the relationship and build trust. Remember, we are here to make that best out of your mortgage experience and care about your current and future financial needs - It takes two to tango!