Getting approved for a mortgage is no small feat these days. At times it can feel like you have to jump through one hoop after another, chasing down bank statements, pay stubs, tax returns and even copies of deposited checks.
All that paperwork is vital to getting approved for a mortgage but once you are approved it is important that you not forget you are in the middle of the application process. That means you and your application can be evaluated and re-evaluated at any time all the way to closing AND you can still be denied. A denial after initial approval by an underwriter can be for any number of reasons but some of the more common items that can cause problems for borrowers are:
- Credit can be checked at any time up until closing.
- The appraiser can be asked to go back out to the house.
- The underwriter can call your employer.
With those things in mind, here are some mistakes to avoid after applying for a mortgage.
Don’t open new credit accounts: For any reason! Wait until the loan closes and then you can borrow to your heart’s content. A seemingly innocent transaction like opening a line of credit at the local furniture store to buy a couch for your new home can end the deal, no questions asked. Cars are another purchase that get many borrowers in trouble. See the first item above. A simple credit check by a car dealer before closing can raise a red flag for the underwriter and end your hopes for a mortgage.
Don’t change jobs: Lenders like to see job stability and a regular paycheck. Changing jobs during the loan process won’t automatically kill your chances of getting a mortgage but it will definitely make it more difficult. Even if you are changing jobs in the same field, for more money, the lender could require two months of pay stubs from your new job before allowing the loan to close. If you are buying a home with this mortgage, the last thing you want to do is give the seller a reason to back out of your deal and sell your dream home to someone else.
No deposits that can’t be documented: Expect to have to document every deposit to your bank account(s) for the two months prior to application and even during the loan process. Underwriters don’t like to see deposits that make them go, “Hmmm.” Why? Because they are trying to verify that you can make the monthly payment of your new mortgage. A $3,000 cash deposit with no bill of sale, receipt or gift letter will not help you qualify for a mortgage and could kill the deal if you need those funds for a down payment.
Don’t start remodeling the kitchen: Actually, don’t make any modifications to your home while waiting for your loan to close. One of the most unfortunate mortgage stories I have heard is that of a couple who wanted to refinance their home and take some cash out so they could remodel their kitchen. Everything had been going smoothly. All necessary documents had been supplied, the appraisal came back with an appropriate value and the underwriter had given conditional approval for the loan. Unfortunately, one of the conditions was for a minor issue on the appraisal, so the appraiser had to go back to the house to take some pictures.
The pictures revealed to the underwriter that the kitchen had been completely demolished by the borrowers in anticipation of closing. The borrowers thought their mortgage was a done deal. Instead, they were left with a torn up kitchen and no money to repair it. Lenders won’t give you money if the home has significant livability issues. That means the home needs floor coverings, a roof that is not failing, running water, toilets, electricity in the house that is up to code AND a kitchen.
