You’ve managed to find the perfect house, now it’s time to apply for the mortgage to secure the financing. But, when it comes to securing your home loan, there are a few buyer mortgage don’ts you should keep in mind:
- Don’t do anything that will cause a red flag to be raised by the scoring system. This would include adding new accounts, co-signing on a loan and changing your name or address with the bureaus. The less activity on your reports during the loan process, the better.
- Don’t apply for a new credit card of any kind. Including those “You have been pre-approved” credit card invitations that you receive in the mail or online. Every time that you have your credit pulled by a potential creditor or lender, you lose points from your credit score immediately.
- Don’t pay off collections or charge offs during the loan process. Unless you can negotiate a delete letter, paying collections actually will decrease the credit score immediately due to the date of last activity becoming recent.
- Don’t max out or over charge on your credit card accounts. This is the fastest way to bring your scores down 50-100 points immediately. Keep your credit card balances below 30 percent of their available limit at ALL times during the loan process. If you decide to pay down balances, do it across the board. Meaning, pay balances to bring your balance to limit ratio to the same level on each card.
- Don’t consolidate your debt onto one or two cards. It seems like the smart thing to do. However, consolidating all of your debt onto one card makes it appears that you are maxed out on that card, and the system penalizes you as mentioned in number four. If you want to save money on credit card interest rates, wait until after closing.
- Don’t close credit card accounts. If you close a credit card account, you will lose available credit, and it will appear to the FICO that your debt ratio has gone up. This will also affect other factors in the score such as length of credit history.
- Don’t pay late. Stay current on existing accounts. Under the new FICO scoring model, one 30-day late payment can cost you anywhere from 50-100 points, and these points take several months if not years to recover.
- Don’t allow any accounts to run past due, even one day! Most cards offer a grace period, however, what they don’t tell you is that once the due date passes, that account shows a past due amount on your credit report. Past due balances can drop scores by 50+ points.
- Don’t dispute anything on your credit report once the loan process has started. When you send a letter of dispute to the credit reporting agencies, a note is put onto your credit report. When the underwriter notices items in dispute, in many instances, they will not process the loan until the note is removed and new credit scores are pulled.
- Don’t make any unusual transactions. Don’t move money from one account to another and don’t make split deposits. Deposits and withdrawals must be clearly traceable.
- Don’t pay earnest money from someone else‘s account. Earnest money must match the bank statement exactly. Do not purchase a cashier’s check or money order with part cash and part check. The cashier’s check or money order must match the amount withdrawn from the bank account exactly.
- Don’t receive cash as a gift for down payments. Gift funds must be documented with a gift letter and the amount of the gift must match the donor’s bank account and the recipient’s bank account exactly. Copies of bank statements from both the donor and recipient are required unless wired directly to the closing attorney.
- Don’t make any major purchases. This is not the time to buy a new car or new appliances. Both of these can affect your credit score and mess up your debt-to-credit or debt-to-income ratio.
- Don’t change jobs! This is a bonus tip. Switching jobs can actually reduce your chance of qualifying for a loan. Lender’s are looking for stability. You’ll need a pay stub to prove your income, so make sure you can show income and longevity.
Keep these mortgage don’ts in mind as you are applying for your loan. If you have questions on mortgage don’ts or mortgage dos, contact Atlanta Real Estate Forum Radio sponsor New American Funding at www.branch.newamericanfunding.com/Atlanta.