What NOT to do when applying for a mortgage
Be Cautious! What NOT to do when applying for a mortgage or waiting to close your home
1. Racking up Debt
Your debt-to-income ratio – or how much debt you’re paying off each month in comparison to how much money you’re making – is just one factor that lenders look at when reviewing your mortgage application.
2. Falling Behind on Bills
If history shows that you can’t pay your bills on time, your lender will likely assume that you’ll make late mortgage payments too.
3. Maxing out Credit Cards
One thing that affects your score is your debt-to-credit ratio. That’s the amount of credit you’ve used relative to your available credit. For instance, if you owe $5,000 on a credit card and you have an $8,000 credit limit, your debt-to-credit ratio is 62.5%. Ideally, that ratio shouldn’t rise above 30%. And if you’re in the market for a new home, it’s important to keep it as low as possible.
4. Closing a Credit Card Account
You might think that closing an account will improve your credit score. But that’s not necessarily true. By getting rid of a credit card and reducing your level of available credit, your debt-to-credit ratio could skyrocket. And as a result, your credit score could sink.
5. Switching Jobs
Making a career change weeks before meeting with a lender might hurt your chances of qualifying for a mortgage. A lender is going to want to make sure you have a stable source of income and you can afford to pay a mortgage bill every month.
6. Making a Major Purchase
Buying something big – like new appliances or a new car – could lead a lender to reject your mortgage application. You’ll need to have cash on hand when you’re buying a house so that you can pay for your down payment, closing costs and insurance. What’s more, if you have to take out a loan or swipe a credit card to make that purchase, that’s could affect your credit score if you can’t pay the bill in full on time or your debt-to-credit ratio rises.
Lenders monitor your credit right up until the closing date. Be sure to position yourself correctly for the deal to close.