Avoid these mistakes while waiting to close on your mortgage

Ginger Dean

December 9, 2013

By: Ginger Dean, Home Finance Specialist

In: Finance and Legal

Most people are familiar with the basics of what they need to do before applying for a mortgage. What they aren't familiar with is what not to do. This has become even more important considering the housing market's situation right now and the strict lending process involved to avoid a repeat of the housing crisis. Unfortunately, ignorance of these things or even good intention is probably likely to hurt your application. You'll understand when you read some of the points below.

Change jobs

It's great news when you have an opportunity to change your job to a more rewarding one or move towards a more lucrative career, isn't it? Unfortunately, this can hurt your application process.

While it's understandable that sometimes, people move to a new location or area, lenders are more predisposed to approving loans for people they consider safe and stable (read: stuck in one job) as opposed to someone who changes jobs frequently.

A change of career in the middle of a mortgage application is not good for you. If you have to change your career, wait until you have been approved and the mortgage is closed before making the move.

Taking out more credit

This is an avoidable mistake. A lot of people do this and then wonder why they were turned down. Taking out more credit will involve new credit queries (as the provider will have to check your creditworthiness) and give you new, unused credit lines - which the lenders see as a red flag.

And when there's a sudden spike of activity and inquiries into your credit situation (which often happens when you want to take on new credit) the mortgage lender is likely to consider you a higher risk. As a rule, avoid taking on or applying for any new credit 90-180 days before your application for a mortgage and during the process - even when you have an excellent credit core.

Closing major credit card accounts

I don't know anyone who wouldn't welcome the opportunity to pay off their debts and close a major credit card account. Sadly, closing a major account before or during the approval process will hurt you, regardless of your excellent credit scores.

Here's why: closing a major account temporarily increases your debt to credit limit ratio. While the lenders may not necessarily disqualify you, they could raise your interest rates. Crazy, I know. But it is what it is. Don't close any accounts during this sensitive time as your credit score will suffer. You can terminate the account after you've closed on the house if you need to.

Major purchases

Buying a new car to go with the new home can seem like a great idea - but not when you buy the car before the mortgage is closed. Doing so before the closing increases your debt which reflects poorly to the underwriter. This basically means that it increases the chances of you falling below the lenders credit standards. My advice? Hold off until you've been approved and closed the deal before buying anything major.

These mistakes are pretty easy to avoid. It simply requires patience and strategic thinking around managing your credit. Doing so will ensure smooth sailing through the underwriting process. Then and only then should you pursue taking on more credit, though you should probably adjust to the new purchase before doing so.

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