It’s smart to begin your search for a new home with a pre-approval letter. The pre-approval is more in-depth then a pre-qualification letter, which does not include a credit analysis. In order to provide a pre-approval, your lender will pull your credit, analyze your income and asset documentation, and calculate your debt-to-income ratio, resulting in a reasonably accurate estimate of your spending limitations. This will give you a good idea of what you can afford and may give you an advantage over the competition.
Once you have been pre-approved and you immerse yourself in the house hunt, it’s easy to go into “buying mode” and forget about the financial background that made your loan possible.
Here are some tips on what to do, and what not to do, to keep your credit score and loan on track from pre-approval through closing.
DO: Over-communicate. The more information, the better.
Keep your mortgage loan advisor informed of all the details of your financial background. Last minute, unexpected surprises are never helpful when it come to the home loan process. Be prepared to discuss any and all of the following with your mortgage loan advisor:
• Down payment
• Verification of all large deposits to your bank account
• Detailed history of all sources of income
• Current debt obligations, including rent and mortgage payments
DON’T: Make major financial changes or purchases.
Your mortgage approval was based on a certain set of criteria such as debt-to-income ratio, cash reserves, assets, etc. Changing those may jeopardize the closing and funding of your new home, especially if you are spending reserves and savings that are slated to be used for the purchase of your new home.
• Do not change bank accounts
• Do not make any unusual or especially large withdrawals or deposits to bank accounts
• Do not change jobs
• Do not open new accounts that can increase your monthly debt (e.g., credit cards or loans)
• Do not make major purchases including things like furniture, a car, a boat, or jewelry
• Do not pay off charges or collections (This may seem counter-intuitive but the credit reporting system can be complicated, and changes you make in the name of credit improvement could end up negatively impacting your score.)
To find out more about obtaining pre-approval to begin your new home search, contact a loan advisor near you. For more information about unique borrowing solutions that look beyond income to consider assets and equity, check out The Tailored Line.