Getting pre-approved for a mortgage can be really exciting – You’re one step closer to owning a home! But pre-approval may also provoke some anxiety. You may be tempted to do whatever you can to improve your odds of final approval, but that impulse can be counterproductive. Your pre-approval is based on a very specific picture of your financial health. Any changes – even what seem like positive changes – can set back the approval process or even result in your loan being declined. It’s best to avoid doing any of the following between getting pre-approved (Congrats!) and closing on your mortgage loan.
Applying for new credit
Hard checks on your credit temporarily lower your credit score, as do new accounts. Don’t apply for any new lines of credit – that includes any “pay later” offers, department store cards, new service accounts or loans (even co-signing!), not just credit cards – while you’re still in the thick of the application process.
Paying off a credit card
It may seem like paying off credit cards would be a good thing. In reality though, older accounts can have a hugely positive effect on your credit, provided that you’re making regular payments. Closing an account reduces your amount of available credit, negatively impacting your debt-to-credit ratio. Keep making regular payments on your cards but don’t pay them off completely.
Opening, closing or changing bank accounts
During the pre-approval process you will be asked to provide bank statements. This not only verifies what money you have but also where that money comes from. Mortgage lenders typically want to see that your assets have been in the same account for a minimum of two months. Switching accounts can mean having to provide new statements and a letter explanation, or worst case you could find yourself waiting an extra 60 days or more for the new account to become seasoned enough for your lender.
Making any unusual big deposits or withdrawals
The reasons for not making big withdrawals should be obvious. Your pre-approval was based upon having a certain amount of money available to you, and the final approval will want to see a similar amount. Depositing funds might not seem like such a bad idea, but it can raise questions. Your lender needs to carefully document any large influxes of cash. There are special rules for receiving money as a gift from family, for example. Any deposits or withdrawals that aren’t specifically accounted for can set back your approval process. Discuss any big deposits with your loan officer before adding the money to any of your accounts, and save any big purchases for after closing.
Paying bills late
This one may seem obvious, but it’s easy to lose track of things in the excitement of the home buying process. Keep yourself organized and make sure that all of your payments are received on time, even the small ones.
The bottom line is – Keep making all of your regular payments on time, and don’t make any big financial changes of any kind without discussing it with your mortgage loan officer first. They are the experts and will be happy to help you navigate any changes you find you have to make. Talk to them before moving any money around. The goal is to keep your financial picture as close as possible to the one that got your pre-approved!