After home buyers get preapproved for a loan, they aren’t guaranteed a swift ride to closing. If they make a financial misstep, they could face a change to their mortgage terms and interest rate or even have their mortgage denied.
Here are some tips with their finances they’ll want to avoid on their road to closing:
Don’t move your money around.
Your buyers may have been storing their cash reserves. Warn them not to move that money out of savings and into stocks, or anywhere else for that matter. “You’d think that isn’t a big deal, but we’re counting how much money you have going into closing,” says Casey Fleming, a mortgage adviser and author of The Loan Guide: How to Get the Best Possible Mortgage
. “With savings, we count that as 100 percent, but with stocks we only use 70 percent of the value because stock prices can change. So, if you have $100,000 in savings and you move that into stocks, suddenly you only have $70,000 from an underwriter’s perspective.” Lenders want to see buyers have enough for the down payment, closing costs, and at least three months of mortgage payments.
Applying for new lines of credit.
Watch how many times you apply for a new credit card or request a credit limit prior to closing. “Some credit inquiries are OK, but not all of them—and you don’t know which is which,” warns Glenn S. Phillips, CEO of Lake Homes Realty. “Worse than the actual hit on your credit score is any pattern of trying to borrow more money from more companies all at once. This suggests you are not wise with your money and just out running up debt you may not be able to repay.”
Heading out on a shopping spree.
Now is not likely the best time to buy too much new furniture, new appliances, or even a new car. “Because lenders often run credit reports within hours of the scheduled closing, running up new large debt is an awful idea,” Philips says. “It can change debt ratios, change your interest rate (which may also kill your mortgage approval), and even lead to a lender deciding you have too much debt and (you are) not worth the risk anymore.” You can still put small charges on your credit cards. You aren’t required to have a zero balance to get approved. But for any big-ticket items, it may be best to wait until after closing.
Source: “5 Stupid Money Mistakes That Can Get Your Mortgage Denied,” realtor.com® (March 13, 2017)