Waiting for your mortgage to close? Here are five things to avoid in the interim until the house is yours.
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So, you've found a house you love, been approved for a mortgage, and are just waiting to close on your loan.
It can sometimes take a few days or even a few weeks to get from this point to your closing date when the transfer of the property takes place. And, in this intervening time, you may be tempted to start shopping for your home or otherwise begin getting ready for big changes to your life.
The only problem is, certain actions you take could potentially jeopardize your ability to close on your mortgage loan. That's because the lender approved you based on your current financial situation and making changes to that situation could cause big problems.
You don't want to do anything to delay your closing, or to turn your mortgage approval into a mortgage denial, so you'll want to avoid taking any actions that could affect your home loan. In particular, you should be sure to avoid these five big mistakes.
1. Taking on new credit
When you move into a new house, you probably have a lot of new things to buy to make your new home comfortable. It may be tempting to finance your new furniture, open a line of credit at an appliance store for a new washer and dryer you'll need, or even just apply for a new credit card so you can max out the points you'll get on all your upcoming purchases.
Unfortunately, taking out any kind of new loan -- even for something as small as a furniture purchase -- could affect your credit score as well as your debt-to-income ratio. If your credit score drops or if your monthly debt payments increase, this is going to send up red flags with your mortgage lender.
If you no longer appear to be as qualified of a borrower, or if your debt-to-income ratio doesn't fit in with the lender's guidelines anymore now that you've got an additional debt, you may no longer be able to obtain your mortgage at the agreed upon terms. Closing is likely to be delayed, and your loan terms might be worse when everything is straightened out.
2. Moving money around
Many mortgage lenders want proof of assets you own. They want to see you have the down payment on the house, money for closing costs, and sometimes additional cash reserves in the bank. And, they don't want to see a lot of fluctuation in your bank account balances.
If you move a big chunk of change from one account to another -- say because you withdraw money from an investment account to cover some of your upcoming moving expenses -- this could cause problems.
I have personal experience with this one. When my husband and I bought our first house, he moved money from a business account to a personal bank account to help pay the down payment. This made the bank nervous about whether his business could still function without the funds in the business account, and we had to get a letter from his accountant.
You don't want to rock the boat once you've been approved for your mortgage, so try to leave funds where they are until after closing.
3. Closing old credit accounts
If you have old credit cards you don't use anymore, you may be tempted to close them before your move as part of the process of getting all your financial affairs in order before officially becoming a homeowner.
Unfortunately, if you do this, you could end up hurting your credit score and even jeopardizing your mortgage.
Closing old cards changes your debt utilization ratio, which is calculated by dividing the amount you've borrowed from the credit available to you. A higher debt utilization ratio results in a reduced credit score.
You don't want your credit score to go down before closing on your mortgage loan, so keep the old accounts open until after you've moved in. In fact, you probably don't want your score to decline then either, so you may wish to just keep those old accounts around indefinitely unless they're costing you money or there's some other specific reason to close them.
4. Charging up your credit cards
As mentioned above, taking out new loans before closing on a mortgage is a bad idea. But, you also don't want to charge up your existing credit cards with all your new-home costs either. Maxing out your credit cards hurts your credit utilization rate and score -- just as closing old accounts does. And, it hurts your debt-to-income ratio, just as taking on a brand new credit card would.
While you may want to have everything set before moving into your new home, restrain your shopping impulse until you've actually got the keys in your hand. Then, you can hit the stores and get what you need to settle in. Of course, even then it's smart to stay on a budget because the last thing any brand new homeowner needs is a mountain of bills to pay.
5. Quitting your job
Finally, it's imperative you avoid changing your employment situation before closing on your home. Lenders based approval of your loan on your current income and lenders want to see steady employment so they'll feel comfortable you'll be able to pay back your loan.
When the mortgage lender calls your company to verify employment, if the company tells the lender you're no longer working there, that's going to cause major problems and will either delay your closing or prevent you from ever closing at all.
Don't make moves that will delay your closing
Delaying your closing could cause you to wait longer to move into your home, could mean incurring extra costs, or could even mean that your deal falls apart completely. It's not worth doing anything to jeopardize your ability to close on time, so steer clear of these five actions -- and of making any other big changes to your finances -- until you've closed on your loan and have got your keys in your hands.
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