Those who want a home loan have to prepare for the new loan application in several ways–financially, through saving up for the down payment and closing costs, and with credit prep. That can mean working on your record of on-time payments, lowering your overall debt amounts, and avoiding new credit in the meantime.
When applying for any large line of credit, there are some things that can stop your loan dead in its tracks. If you want a home loan and are worried about being approved for a home loan, add these issues to your mental not-to-do checklist and make sure you know how to avoid them.
Avoid New Debt
Your lender pulls your credit when you apply for your home loan–most people know that. But not as many know that the lender will check your credit reports more than once during the home loan process. Borrowers who add new debt before the home loan closes jeopardize their loan approval chances. Why?
If you add more debt to your debt-to-income ratio, when the lender sees the new debt in your credit report they may be required to stop the loan until it is verified that the borrower can still afford the mortgage. The new debt throws that into question. The new debt WILL be added to the equation.
If your new debt causes your debt-to-income ratio to increase beyond a certain range, the loan may be canceled. Your lender likely has been forced to do this already at least once in their career.
Don’t Initiate Major Job Changes
What is your loan officer supposed to do with mortgage loan applicants who quit or lose jobs before their loans close? If YOUR job depended on you insuring someone is a good risk for a home loan, would YOU cancel the loan? This is the dilemma your loan officer faces with applicants who have major job changes before closing time.
What kind of changes? Borrowers who switch from salary or hourly income to commissions during the loan process, borrowers who become self-employed, or those who change careers before loan closing time may have problems moving the loan forward.
If the original form of income was determined to be stable and reliable (often because you’ve held it or another job like it for a minimum amount of time) starting a new type of income and employment in the middle of the loan process won’t give the lender the minimum time on the job required to determine if your income is likely to continue.
Application Errors Or Omissions
Did you list that you have a specific amount of cash saved up for a down payment only to have the lender discover that you only have a smaller amount? This complicates the down payment issue because home loan regulations require the lender to verify all down payment funds come only from approved sources.
This will take time to verify. Could your mortgage process halt until this issue is sorted out? In most cases yes.
Some lenders run into problems where tax paperwork is concerned. Your lender cannot proceed without all required tax documents and if you, for example, have not filed taxes for a year required by the lender your loan may stop until you supply that information.