Actions to Avoid When Applying for a Loan

The lending environment has changed drastically over the past three years.   Now more than ever, lenders are very nervous to lend money and are tightening their guidelines.  The process to obtaining financing for a home is extremely difficult and often times painful.  I have listed below actions to avoid before applying for a mortgage loan and during the loan process itself.  Any one of these ten actions could impact your ability to qualify for a mortgage loan so it is critical to avoid any of them until after your loan has closed or your loan officer has advised you.

  1. DON’T .. buy or lease an auto. The lender looks carefully at the debt-to-income ratio and a large payment such as a car lease or loan can greatly impact those ratios and prevent you from qualifying. Also, each time an auto dealer or car insurance company checks your credit, your credit rating will be reduced.
  2. DON’T .. be tempted by low introductory rates or store discounts offered with new credit cards. Each time a creditor opens an account for you they check your credit. Each time they check you credit, an inquiry is created in your credit file, which reduces your credit rating. And each new account that is opened will further reduce your credit rating because you are taking on more debt.
  3. DON’T .. move assets from one bank to another. These show up as new accounts or large deposits and complicate the application process, as you must then document the source of funds for each new account. It is better to let the lender verify each account before you move the funds around.
  4. DON’T .. change jobs. Even if you earned bonuses or commissions in your previous job, the lender will not be able to use this income in a new job until you have a year or two of earnings history behind you, which could seriously impact your ability to qualify for a loan.
  5. DON’T .. buy new furniture or major appliances for the “new house”. If the new purchase increases your debt load, it can disqualify you from the loan or deplete your funds to close. And don’t forget, each time someone checks your credit or you open a new account, your credit rating will be reduced.
  6. DON’T .. attempt to consolidate bills before speaking to your lender. The lender can advise you if this needs to be done.
  7. DON’T .. pack or ship information that may be needed for the loan application. Important paperwork such as W-2’s, divorce decrees, and tax returns should not be sent with your household goods.   Duplicate copies can take weeks.
  8. DON’T .. throw away pay stubs and bank statements. Save everything until after your loan closes. You will need to provide one to two months worth of documentation when you apply for your loan, and you may need to provide additional paperwork prior to closing.
  9. DON’T .. make any unusual deposits. Your bank statements will be closely looked at for unusual deposits/transactions.   It’s best to keep the status quo with your accounts so you don’t have to provide further documentation for the lender.
  10. NEVER .. Spend the money you have set aside for the closing/down payment.