Are you pre-approved for a mortgage and getting ready to purchase the home of your dreams? Before you get too excited, keep in mind that a fully approved loan can get denied for funding even after you have signed all the loan documents.
How does this happen? The answer is simple. Before funding, the underwriter pulls a new credit report, and any new findings can be used as justification to kill the loan. This isn’t likely to occur if the timeframe is within 30 days, but you can expect a new credit report to be pulled if the date of the application is more than 60 days out from actual funding.
Losing a loan after approval is very common. To help prevent this from happening to you, follow these dos and don’ts.
Do continue making your mortgage or rent payments
The key element a lender is looking for is responsible payment patterns. Any change in these patterns can affect your credit, thereby affecting whether your approval on a new loan still stands. Even if you have given notice, continue paying rent or your current mortgage until you have signed final loan documents and your loan has been funded.
Do stay current on all accounts
The quickest way to lose funding on a loan is making a late payment. Be sure to stay up to date on all loan obligations.
Don’t make a major purchase
This is what troubles borrowers the most. A large purchase can run up your credit card balance, thus lowering your credit score. The best tip is to avoid that big purchase until after you have signed your final loan documents. This includes buying a car, boat, TV, or (especially) furniture.
Don’t open a new credit card or cell phone account
Opening a new account requires a credit inquiry, which can lower your credit score. If you’re on the border credit-wise, that additional inquiry could lower your score enough to impact a decision from your loan provider.
Don’t close any credit card accounts
Closing an account lowers the amount of credit you have available, which can lower your credit score since your credit-availability-to-use ratio accounts for 30 percent of your score.
Don’t consolidate your debt into one or two cards
Doing this lowers the amount of credit you have available, which, again, can impact your credit score.
Don’t take out a new loan
This includes any type of loan, such as a car or student loan, or new credit card. Any of these obligations can have a negative impact on your credit and will likely not reflect positively to underwriters and investors.
The key takeaway here is to wait until after your loan closes before making any major financial changes, such as obtaining a new loan, consolidating debt, or opening new accounts.
If you’re considering purchasing a home, the first step is to ensure a positive credit score. If you have a poor credit score, it isn’t too late and you might be a good candidate for credit repair solutions. Let us at Ovation help you. We offer a wide range of credit repair solutions, customized to meet your unique needs.
Contact us today to see how we can help.