The Do's and Don't of the Mortgage Process

Follow these Do’s and Don’ts for a smoother mortgage approval process.
 
DO continue making your mortgage or rent payments
Remember, you’re trying to buy a home – one of the first places an underwriter looks for responsible patterns is at your current rent and/or loan history.  Even if you plan on closing in the middle of the month, or if you’ve already given notice, continue paying that rent until you’ve signed your final loan documents.  It’s always better to be safe than sorry.
 
DO stay current on all accounts
Much like the first item, the same goes for your other types of accounts (student loans, credit cards, etc.).  Nothing can derail a loan approval faster than a late payment coming in the middle of the loan process.
 
DO keep your bank account balance in the positive at all times
Underwriters hate “financial mismanagement” when you take your bank account into the negative.  This could lead to additional explanations and give the underwriter a negative perception of your financial situation.  
 
DO save as much money as possible during the loan process
Underwriters LOVE that little extra rainy day money in the bank.  It’s not required but it never hurts.  J
 
DO stay in touch with your Real Estate Agent while searching for a home
It’s important to make sure you’re keeping your agent up to date with any tweaks or changes in your search criteria.  Also, a real estate agent that you keep in touch with, will give you some preferential treatment.  Ever heard of the squeaky wheel getting oiled?  J
 
DO notify me if you are thinking about changing jobs
It’s not a deal killer, but we need to make sure everything still works with the new employment and income.
 
DON’T deposit cash in the bank
Don’t deposit and large sums of cash into your bank accounts, mortgage underwriters are very strict on the funds that enter your bank account, everyone has a small savings of cash but you don’t want to put that in the bank because it is not traceable funds, the underwriter will basically not allow that money to be used for the loan in any way.
 
DON’T pay for your earnest money deposit with cash or money order
Same as above…often times the underwriter can’t source this money and thus we can’t use it towards the loan transaction.  Make sure to pay for the earnest money deposit with a personal check or a wire transaction with no cash deposits into the bank account right beforehand.
 
DON’T make a major purchase (car, boat, big-screen TV, etc…)
This one gets my clients in trouble more than any other item.  A simple tip: wait until the loan is closed before buying that new car, boat, or TV.
 
DON’T buy any furniture
This is similar to the previous, but deserves its own category as it gets many borrowers in trouble (especially first-time home buyers). Remember, you’ll have plenty of time to decorate your new home (or spend on your line of credit) AFTER the loan closes.
 
DON’T open a new credit card
Opening a new credit card dings your credit by adding an additional inquiry to your score, and it may change the mix of credit types within your report (i.e. credit cards, student loans, etc.)  Both of these can have a negative impact on your score, and could result in a denial if things are already tight.
 
DON’T close any credit card accounts
The reverse of the previous item is also true. Closing accounts can have a negative impact on your score (for one – it decreases your capacity which accounts for 30% of your score).
 
DON’T open a new cell phone account
Cell phone companies pull your credit when you open a new account. If you’re on the border credit-wise, that inquiry could drop your score enough to impact your rate or cause a denial.
 
DON’T look at buying a manufactured home
The underwriter won’t approve this home type
 
DON’T consolidate your debt onto 1 or 2 cards
We’ve already established that additional credit inquiries will hurt your score, but consolidating your credit will also diminish your capacity (the amount of credit you have available), resulting in another hit to your credit.
 
DON’T pay off collections
Sometimes an underwriter will require you to pay of a collection prior to closing your loan; other times they will not.  The best rule of thumb is to only pay off collections if absolutely necessary to ensure a loan approval. Otherwise, needlessly paying off collections could have a negative impact on your score.  Give me a call prior to paying off any accounts.
 
DON’T take out a new loan
This goes for car loans, student loans, additional credit cards, lines of credit, and any other type of loan.  Taking out a new loan can have a negative impact on your credit, but also looks bad to underwriters.