What are the DO’s and DO NOTs after applying for a mortgage?

 1. Talk to your lender before depositing cash into your accounts.

Cash is not an acceptable source of funds for a down payment. If the loan program you are using requires bank statements, lenders are going to look for a large deposit (for example, FHA requires anything over 1% of the purchase price to be sourced). Cash as a down payment isn’t allowed because it can’t be sourced.

2. Wait until after closing to make a major purchase (i.e. furniture, car, boat). WAIT to apply for a new credit card or take out other loans.

Making a large purchase, such as a car, can affect your loan qualification as this will most likely increase your debt-to-income ratio. This ratio measures how much money you have coming in vs. going out. Ratios are used for most loan types when getting qualified. Obtaining new credit, worst case, could disqualify you for the loan all together based on your new debt-to-income ratio or credit score.

3. Don't close any credit accounts.

Closing credit accounts can also affect your credit score. Part of your credit score is made up of length of credit history and when you close a credit trade line, you lose that active credit history. For example, if you’ve had the same credit card for six years, and you close that account, those six years of on-time payments now do not count toward your credit score.

4. DO keep working at your current employer.

Your loan approval is based on your debt-to-income ratio with your employer that we have verified. Additionally, a change in income could affect this ratio and that could jeopardize your loan approval. Worst case, changing jobs into a new field could disqualify you for the loan. Self-employed, commission sales, and part-time income usually requires two-year job history. So, if you are in a salaried position and change to commission-based employment, this could cause your loan request to be denied.

5. DON'T transfer balances from one account to another.

Some loan programs require copies of bank statements and lenders review those bank statements for large deposits. A transfer could be considered a large deposit, and this is problematic because the transfer of funds would now require bank statements from where the money came from. The more statements an underwriter reviews, the more chances there are for issues that could come up and more work for you providing additional documentation.

6. DON'T pay off collections without speaking to us first.

Although paying off debt is a good thing, during the loan process this could affect your loan approval. If your lender has already approved you with your collection on your credit, there is no need to pay it off during the mortgage process. 

In some instances, paying off a collection could lower your credit score. For example, if you have a collection that’s 10 years old, this has a very little impact to your credit score because it was over a decade ago. If you paid the collection off, that collection goes from unpaid in 2010 to paid in 2021, which is now going to have more of an impact because it is coded as a recent transaction. 

Bottom Line

The best plan is to fully disclose and discuss any financial changes with me, your loan officer.