Buying a home is exciting. It is easy to start thinking about moving day, arranging furniture, and making the place your own. But between applying for your mortgage and closing on the home, your financial decisions still matter.
The practical rule is simple: talk with your loan officer before making financial changes. That includes large purchases, cash deposits, moving money, and opening or closing credit accounts. Changes in your income or employment deserve a conversation, too.
You do not have to figure out the impact of every decision yourself. Keep your lender informed, ask questions before taking action, and use the following guidance to avoid common mistakes.
Keep Your Money Easy to Document
Do Not Deposit Large Sums of Cash Without Talking to Your Lender
Lenders need to know where your money came from. Cash is not easily traceable, which makes documenting its source important during the mortgage process.
Before depositing cash into your accounts, ask your loan officer how to document the transaction properly. The conversation should happen before the deposit, rather than after you have already moved the money.
Your next step: Tell your loan officer about the cash you intend to deposit and ask what documentation is needed. Do not assume that having the money in your account is the same as documenting its source.
Do Not Switch Bank Accounts or Move Money Without Checking First
Your lender also needs to track your assets. That task is easier when your accounts stay consistent throughout the mortgage process.
If you are considering switching bank accounts or transferring money, speak with your loan officer first. The goal is to keep your money easy to source and track, not to leave your lender sorting through changes you have not discussed.
Your next step: Explain which accounts are involved and what you want to move. Ask how to handle and document the transfer before you make it.
Avoid Taking On New Financial Obligations
Do Not Make Large Purchases
Furniture and appliances can feel like part of buying a home. Still, they belong on the list of purchases to hold off on until you have spoken with your lender.
The concern is not limited to home-related spending. Any large purchase can be a red flag for a lender, and some purchases could leave you no longer qualifying for your mortgage.
New debt raises your debt-to-income ratio, which compares your debt obligations with your monthly income. Higher ratios make loans riskier for lenders. If your ratio increases, you may no longer meet the requirements for your home loan.
Your next step: Before making a large purchase, tell your loan officer what you are considering. Resist the temptation to buy first and ask about the mortgage impact later, even when the purchase is for your new home.
Do Not Cosign a Loan for Someone Else
Cosigning is a financial obligation, even when you are doing it to help someone else. When you cosign, you become accountable for the loan and its repayment.
That obligation also affects your debt-to-income ratio. Promising that the other person will make the payments does not remove your responsibility. Your lender still has to count those payments against you.
It is important to look at cosigning as taking responsibility for a loan, not simply lending someone your name.
Your next step: If someone asks you to cosign while you are buying a home, speak with your loan officer before agreeing. Explain the proposed obligation so you can discuss its effect on your mortgage.
Leave Credit Changes Until You Have Asked Questions
Do Not Apply for New Credit
A new credit card or a new car may seem separate from your home purchase. But applying for credit is another decision to discuss with your lender before moving forward.
When organizations across different financial channels, such as mortgage, credit card, and auto lending, run your credit report, those inquiries affect your FICO® score. A lower credit score can affect your interest rate and possibly your eligibility for approval.
The important point is not whether the new credit is connected to your home. It is whether the application changes the credit picture your lender is reviewing.
Your next step: Talk with your loan officer before submitting a credit application. Do not assume that a different type of financing has no bearing on your mortgage.
Do Not Close Credit Accounts
Some buyers believe that having less available credit makes them less risky and more likely to be approved. Closing accounts is not the simple improvement they expect.
Your credit score reflects more than your payment history. Important components include the length and depth of your credit history and how much of your available credit you are using.
Closing accounts can negatively affect both of those parts of your score. Trying to tidy up your finances by closing credit accounts is therefore something to discuss, not something to do automatically.
Your next step: Leave credit accounts alone until you have talked with your loan officer. Explain what you want to close and why, and ask how that decision could affect your mortgage.
Tell Your Lender About Changes Early
Not every financial change is a purchase or a credit decision. Changes in income, assets, employment, or credit also need your lender's attention.
Be upfront about changes that have already happened and changes you expect. If your job or employment status has recently changed, share that information rather than assuming it is unrelated to the loan.
Your lender should review changes with your mortgage eligibility in mind. That review is not a promise of approval. It is a reason to communicate before taking action whenever possible.
Full disclosure is the best starting point. Tell your loan officer what has changed, what you are planning, and what questions you have.
Before You Act, Have a Conversation
You want your home purchase to go as smoothly as possible. Before making a large purchase, moving money, changing credit accounts, or making a major life change, consult your lender about how it may affect your home loan.
As a practical next step, write down any financial changes you are considering and review them with your loan officer before acting. If you have questions about what to do after applying for a mortgage, reach out to Ed Parcaut to discuss your next step.
