Many homebuyers need a mortgage to buy a home, so it’s important to prepare so you have the best chances of getting approved for a loan. Here are some things you should try to avoid when you apply for a mortgage.
- DON’T: Make major purchases (especially on credit).
Buying something expensive, like a new car or appliance, can hurt your chances of qualifying for a mortgage. If you charge a large amount on your credit card, it can affect your credit score and your debt-to-income ratio will rise. It also adds inquiries to your credit report, which can raise a red flag to lenders.
- DON’T: Change jobs.
Lenders want to make sure you have a stable source of income, so during the time of your mortgage application, it’s best not to switch jobs. Most lenders look for at least two years of employment with the same company. If that is not possible, your best bet is to get your new employer to provide proof of your new job, and what your income will be.
- DON’T: Make big deposits.
Generally, making a large deposit into your bank account prior to visiting a mortgage lender won’t look good. Lenders normally want to see that you have plenty of money in your account that’s been there for at least two months.
If you have received a gifted down payment from relatives, you shouldn’t deposit the money without properly documenting it and discussing it with your lender first.
- DON’T: Close a credit card account.
Even if you no longer need them or use them, you should wait to close any credit card accounts. Closing your accounts can lead to a higher debt-to-income ratio and reduces your available credit, which will potentially put your loan at risk.
- DON’T: Apply for new credit cards/limits
Applying for a new credit card, or requesting a higher limit, may indicate to your lender that you need more cash. They may consider that a red flag because it may be an indication that you cannot afford the monthly mortgage payment. This could change the terms of the loan, or worse, lead to a mortgage denial.
- DON’T: Fall behind on bills.
Lenders like to see a good credit score (usually ranging from 620 – 640). That means you don’t want to do anything that can potentially hurt your score, like being late on bills.
Many lenders use the FICO scoring model, and submitting a payment even one day late can knock a few points off your credit score. If history shows that you can’t pay your bills on time, your lender will likely assume that you’ll make late mortgage payments too.