When getting ready to purchase a home, a buyer needs to get a prequalification or preapproval letter from their lender. The thing to remember, is that these “prequalifications and preapprovals” are just that…the beginning stage of the loan process. These letters DO NOT mean that a buyer is 100% approved for the home loan. As such, there are things that may affect the outcome of your loan request. There are certain “Dos and Don’ts” that remain in effect before, during and after loan approval until the time of settlement when the loan is signed, funded and recorded.
As a buyer it is crucial that nothing is done that may alter a credit report. This is because, many times a buyer’s credit report, income and assets are verified within hours of the buyer signing final loan documents, and any changes may put obtaining the loan at risk. Not only could these changes put your loan at risk, it can also put the earnest money deposit at risk.
The Don’t List:
• Absolutely do not quit or change jobs. Without a proven and steady source of reliable income, it is likely the loan will get denied.
• Do not allow anyone to make a credit inquiry, with the exception of the lender.
• Do not apply for credit anywhere else, except the lender. Applying for credit creates inquiries on the credit report and reduces the credit score. Thus, it can have a detrimental effect on the lender’s determination of creditworthiness.
• Changing banks or transferring money within an existing account can raise serious red flags. A buyer needs to keep their accounts open and with limited changes during the loan process.
• Never co-sign for anyone, for any reason, for anything! It may be that a buyer wants to help their child purchase a car or rent their first apartment. No matter how much a buyer wants to help, do not do it, as that debt reflects on a credit report and becomes a factor into the buyer’s debt-to-income ratio.
• This next one is crucial. I have seen it happen: A buyer gets preapproved for a loan and then gets so excited and goes out to purchase the perfect living room set for their new house. Or the perfect car for the new garage. No matter how much it may seem like a good idea; it is NOT! Do not purchase anything else on credit; not a car, truck, boat, furniture or other real estate. Purchasing on credit directly affects the debt-to-income ratio, and lenders definitely do not look favorably on new debt.
• Coinciding with the above, do not charge large or abnormal amounts to existing credit card accounts.
• Finally, do not send in any late payments or incur late fees for anything!
Now, what does a buyer DO during the loan and escrow process?
The “Do” List:
• Absolutely, with no exceptions, a buyer needs to keep all accounts current, including mortgages, car loans, credit cards etc.
• If any questions arise, contact both the lender and real estate broker immediately.
• Make all payments on or before the due dates of all accounts.
• Stay in direct contact with buyer’s broker, lender and escrow officer. Meaning, if they call or email, make it your first priority to get right back to them.
Following these guidelines will help to manage the loan process and create a smooth path for loan approval.