While it’s exciting to have your offer accepted, the celebration must wait as numerous stages must be navigated before officially securing your new home. A potential stumbling block in this process is obtaining loan approval during the home-buying journey.
Despite obtaining pre-approval for the necessary loan, there are still potential pitfalls that can arise. Homebuyers may inadvertently take actions that put their mortgage approval at risk.
The possibility of being denied after pre-approval exists, making it crucial to navigate the loan approval process with care. To assist you in avoiding financial missteps, we’ve compiled a list of things you should steer clear of during this crucial phase.
Avoid These 10 Mistakes During the Loan Approval Process In Austin, TX
Securing a loan approval is a critical step in realizing your dream of homeownership, and it requires careful financial management. To ensure a smooth loan approval process, steer clear of the following common pitfalls:
1. Refrain from Taking Out New Loans or Credit Cards
Opening a new loan or applying for a credit card triggers a hard inquiry on your credit report, temporarily lowering your credit score. During home loan approval, a reduced credit score may lead to a higher interest rate, increasing the overall cost of your loan.
2. Avoid Making Significant Purchases on Credit
While the temptation to furnish your new home may be strong, making large purchases on credit can elevate your debt levels and impact your debt-to-income ratio. Keeping this ratio below 30% is crucial when applying for a home loan.
3. Steer Clear of Increasing Your Credit Card Debt
Adding charges to your credit card prior to closing can escalate your debt and affect your debt-to-income ratio. Large charges or maxing out your credit card may pose challenges for loan approval and impact your credit utilization, a factor in determining your credit score.
4. Don’t Change Jobs or Reduce Your Income
Job changes or reductions in income can negatively impact your debt-to-income ratio and disrupt the lender’s assessment. Lenders typically prefer a stable employment history of at least two years. If a job change is unavoidable, discuss the situation with your loan officer to explore possible solutions.
5. Avoid Paying Off Debts Without Lender Approval
Paying off debts may seem beneficial, but it can have unintended consequences. While it improves your debt-to-income ratio, it could temporarily lower your credit score. Consult with your lender before making any significant debt payments.
6. Don’t Close Accounts
Closing old, unused accounts can lower your credit score by affecting the average age of your accounts. It may also impact your credit utilization and reduce the diversity of your credit types, both of which contribute to your credit score.
7. Exercise Caution with Large Deposits
Large, untraceable deposits can raise concerns during the loan approval process. Loan officers typically scrutinize deposits exceeding $1,000. Ensure clear documentation for any significant deposits to avoid jeopardizing your loan approval.
8. Never Miss Any Payments
Timely payments are crucial for maintaining a positive credit history. Missing payments, especially just before home loan approval, can lower your credit score and raise concerns for lenders about your ability to make timely mortgage payments.
9. Co-signing loans for others
Especially when it’s a new loan, co-signing a loan for another means that the loan is a debt for the borrower and for the co-signer. It will go into the debt-to-income ratio mix. So think twice before helping your child or sibling buy a car, at least until after your purchase closes.
10. Underestimating Additional Expenses
Moving costs, new furniture and home improvements can all quickly add up. It’s important to include these expenses in your monthly budget. That way, you’ll know how much you can realistically pay for a new home. Keep this in mind as you negotiate that final price. But before taking on these expenses, see tip number two.
Getting pre-approved is a smart move in the home-buying process. So, too, is protecting your loan qualification status. Both can help you get the home of your dreams.
In Conclusion
By steering clear of these common mistakes, you can enhance your chances of a smooth and successful loan approval process, bringing you one step closer to homeownership.
Introducing substantial alterations to your financial circumstances between pre-approval and closing may impact your ability to secure the expected mortgage. Discovering that you don’t have the anticipated loan can pose significant challenges.
By steering clear of the pitfalls we’ve discussed, you can navigate the underwriting process smoothly and progress toward the closing on your home. It’s crucial to remember that, despite signs pointing towards loan approval, official confirmation is the ultimate determinant of approval.
Getting Pre-Approved For A Home Loan In Austin, TX
I have many trusted local lenders I recommend my clients use on a daily basis. It’s always a good idea to apply to multiple lenders to find the best terms. Different lenders offer different loan programs and you want to shop around to find the best interest rate, potential buy-downs, lowest down payment, and lowest fees.
