Real Estate

What Not to Do After Applying for a Mortgage

This is a guest article by Rosemary.  If you are interested in contributing to Debt RoundUp, please follow our guidelines

What Not to Do After Applying for a MortgageMany home buyers feel a sense of relief after they have applied for a mortgage and have received a pre-approval. At this point, often with a Letter of Commitment, they are off to find a new home. Until the last paper at closing is signed, it is not yet over and there are some very specific things that a home buyer should not do after applying for a mortgage.

  • While it is advised to compare mortgages, do not allow your credit report to be pulled multiple times. Inquiries can affect credit scores.
  • Do not start using your credit cards to make purchases that will increase your debt. The pre-approval was based on existing debt which gave the lender debt to income ratios used to determine the mortgage amount. Any change in debt can have an adverse affect on the final mortgage.
  • Do not open new credit cards or store accounts since these will add to your debt. Lenders look at all open debt even if there is nothing outstanding owed. Also, any increase in accounts can change the credit scores.
  • Do not stop making any payments, such as rent or utilities. Payments for debt must continue to be paid.
  • Do not purchase a new car or take on a new loan or lease.
  • Do not start purchasing furniture, especially if it is being purchased on time.

Any of these can have an impact on the credit score. Even though the lender may have already pulled a credit report, many are now doing so a second time right before the closing of the mortgage. There is no telling if any new credit will appear if another report is requested. Any change in credit scores or history can have a negative affect on the mortgage, the mortgage rate, the closing and can even kill the deal.

In addition, home buyers should not skip having an inspection performed by a licensed inspector. Many mortgages do not require an inspection, however, having one can bring a potential problem or hazard to the homeowner’s attention. An inspection should be considered as important as an appraisal.

Lastly, home buyers should not put off shopping for homeowner’s insurance. Once there is a home sales contract signed, the home buyer should start looking for an insurance agent and getting quotes for insurance based on the sales price. Insurance agents do not need to run a regular credit report as was the case in the past. When the appraisal has been done, it will then be used for obtaining a final quote. In many instances, not being able to obtain homeowner’s insurance or not being able to afford the insurance in a high risk area has destroyed the deal. It’s better to begin this search at the very beginning of the mortgage process.

Obtaining a mortgage is a complex transaction that entails many different factors. For the best results, it is always better to be safe than sorry.

Author Bio: Rosemary has been writing since 2010 for FreeRateUpdate.com, a company that matches consumers with banks and lenders offering low mortgage rates. Previous to her writing career, Rosemary spent 13 years working hands-on in the mortgage industry as a mortgage loan analyst, mortgage processor, property manager, and a mortgage underwriter.

Image courtesy of FreeDigitalPhotos.net

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27 Comments

  1. May 14, 2013 at 7:11 am — Reply

    I’m surprised (or maybe I just missed it…but I’m pretty sure I didn’t) that you didn’t mention DON’T make payments and major transfers of cash. It will drag out the underwriting process since they pretty much all get questioned.

    • May 14, 2013 at 10:40 am — Reply

      Good point DC- This was something we didn’t know about when we bought our home and transferred our down payment money from two other accounts into our main account not realizing the scrutiny we’d be under!

      • May 14, 2013 at 11:06 am — Reply

        How did this end up for you Catherine?

    • May 14, 2013 at 10:42 am — Reply

      You have a great point there DC. Don’t move a lot of money around until you have signed all of the paperwork and have the keys.

    • May 14, 2013 at 6:17 pm — Reply

      That is a very good and important point. I was just trying to bring forward some unusual things that I saw happen when I was underwriting loans.

  2. May 14, 2013 at 8:07 am — Reply

    I believe you also shouldn’t be trying to switch jobs or anything else that will affect your income. It sounds like it’s best to just leave things well enough alone until the process is done. Also, I would really hope that a buyer would know the cost of insurance before agreeing to the purchase. Otherwise they don’t really know the full cost of what they’re purchasing.

    • May 14, 2013 at 10:43 am — Reply

      You are right Matt. Switching a job can be bad. Most banks require you to have a few paychecks under your belt before they will approve you.

    • May 14, 2013 at 6:19 pm — Reply

      Absolutely. And don’t switch jobs right before closing. I once had loan that went to closing and after closing, went to quality control who re-verified the employment of the borrower. We found out the borrower started a new job on the day of closing. What a nightmare that turned out to be!

  3. May 14, 2013 at 8:52 am — Reply

    It’s always best to avoid any move that will affect your income or credit score. Banks tend to get really picky about everything…

    • May 14, 2013 at 10:43 am — Reply

      Right on Jacob.

  4. May 14, 2013 at 8:56 am — Reply

    These are so true. It’s better to wait until your loan closes. Then you can do anything that you want!

    • May 14, 2013 at 10:43 am — Reply

      Well, you can do anything you want as long as you can still pay the new mortgage, right?

  5. May 14, 2013 at 9:41 am — Reply

    These are all great tips! We really want to start churning credit cards, but we know that we must wait.

    • May 14, 2013 at 10:44 am — Reply

      I was thinking about the same thing, but am holding off until we are in our next home, whenever that will be.

  6. May 14, 2013 at 9:44 am — Reply

    Good tips! One thing that I would add is that it’s ok to have multiple mortgage providers to pull your credit…as long as it’s within the 30 day window of you getting the loan. That said, these are all great tips and a good reminder to save anything you may want to do after your loan closes.

    • May 14, 2013 at 10:44 am — Reply

      That is a great tip John. Many people don’t even know that and think each hit is going to be bad, but you are protected for 30 days.

  7. May 14, 2013 at 10:35 am — Reply

    Great tips Rosemary. One issue I’m facing is that I’m closing on mortgage in the next month and working pay off my credit cards in full before we do that otherwise our rate could go up, as a result it could cost us thousands more in interest.

    • May 14, 2013 at 11:05 am — Reply

      That is a good tip Chris. Good luck with paying that off, so you can keep a low rate.

  8. May 14, 2013 at 11:10 am — Reply

    Hi there
    I didn’t realize moving money around could be a problem when buying a house. I know when we bought our home, we liquidated some RRSP’s and moved everything into our joint account in preparation of a down payment.
    In hindsight, I can see how that could be a major thing if they were counting the RRSP’s as assets – and then, all of a sudden they’re not there.
    One thing my mortgage broker shared was that we were really organized – we were pre-approved; had our down payment moved from investment accounts (this can take days/weeks which is a problem when you’re dealing with some thing time-sensitive like a mortgage).
    Thanks for the tips, it will be good to know for the future.
    Cheers
    Lindsey

    • May 14, 2013 at 6:26 pm — Reply

      If you have to move money around, keep all of the paper work and give it to the lender. As long as they can trace everything, it will usually keep them happy.

  9. May 14, 2013 at 12:42 pm — Reply

    Quick question: I had heard something about all the hard pulls for mortgages only counting once over a certain time period. Do you know what I mean? Is that even a thing?

    • May 14, 2013 at 1:13 pm — Reply

      Yes, it is a thing. It is usually a 30 day window after the start of the loan process.

  10. May 15, 2013 at 3:52 am — Reply

    Great tips about the credit card use. I thought if you paid your balance in full, your credit report would always show $0, but it shows the balance of a few days back, like you are carrying a balance.

    • May 15, 2013 at 9:27 am — Reply

      Yeah, I noticed this the other day that one of my cards was reporting from before I made the payment, so it showed a balance. Not helpful.

      • May 23, 2013 at 11:55 am — Reply

        Quick tip if you are paying off credit cards and applying for a mortgage – keep the bills, canceled checks and bank statement showing the payment. If it shows up on the credit report, you can give all of these documents to the lender who can then request an update and also a rapid rescore if credit scores are an issue.

        • May 23, 2013 at 9:42 pm — Reply

          Great tip Rosemary. Always good to have a trail of your actions.

  11. May 15, 2013 at 5:10 am — Reply

    Thanks for this information. I haven’t experienced applying for mortgage loans, but I feel we will be considering it in the future in this tight economy.

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