Applying for a home loan is an exciting step. It is natural to start thinking about moving in, buying furniture and making the place your own. But before you make financial changes, pause and talk with your loan officer.
Your purchases, credit decisions and account activity can affect your mortgage qualification. Something that feels unrelated to buying a home, such as co-signing a loan or switching bank accounts, still matters to your lender.
The practical rule is simple: Discuss financial changes before you make them. Here are the decisions to avoid after applying for a mortgage, along with what to ask your loan officer instead.
1. Don’t Deposit Large Sums of Cash
Lenders need to source your money. In plain English, they need to understand where it came from. Cash is not easily traceable, which makes documentation important.
Although large cash deposits deserve attention, the conversation should happen before you deposit any amount of cash into your accounts. Ask your loan officer how to document the transaction properly.
Do not assume that putting the money into a bank account answers the question of where it came from. The deposit and the source of the money are separate parts of that conversation.
Before you act: Explain where the cash came from and ask what documentation your lender needs before making the deposit.
2. Don’t Make Large Purchases
Furniture and appliances can wait. So can other major purchases while you discuss their potential effect on your mortgage with your lender.
This caution is not limited to things for the house. Any large purchase can be a red flag for a lender, and purchases that create new debt could leave you no longer qualifying for your loan.
Why New Debt Matters
Your debt-to-income ratio compares how much debt you have with your monthly income. Taking on new debt raises that ratio.
Higher debt-to-income ratios make loans riskier for lenders. A borrower who qualified before taking on additional debt may no longer qualify afterward.
That is why a purchase should not be judged only by whether you feel comfortable making the payment. Your lender also needs to consider how the new obligation affects your mortgage qualification.
Before you act: Tell your loan officer what you want to buy and whether it involves new debt. Have that conversation before committing to the purchase.
3. Don’t Co-Sign a Loan for Anyone
Co-signing may feel like helping someone else rather than borrowing for yourself. But when you co-sign, you take responsibility for that loan and its repayment.
That obligation also means a higher debt-to-income ratio. Even if you promise that the other person will make the payments, your lender will have to count those payments against you.
The important distinction is between who plans to pay and who is accountable for repayment. Co-signing makes you accountable, even when you do not intend to make the payments yourself.
Before you act: Discuss any request to co-sign with your loan officer before agreeing. Do not treat it as separate from your own mortgage application.
4. Don’t Switch Bank Accounts or Move Money Without Checking
Lenders need to source and track your assets. Keeping your accounts consistent makes that task easier.
Switching bank accounts or transferring money changes the account activity your lender needs to follow. Before you move funds, talk with your loan officer about what you intend to do.
The goal is not to guess which transfers matter. It is to give your lender the chance to explain how to handle and document the move before it happens.
Before you act: Explain which accounts are involved and what money you plan to transfer. Ask for guidance before switching accounts or moving funds.
5. Don’t Apply for New Credit
A new credit card and a new car may serve very different purposes, but both belong in the conversation with your loan officer before you apply.
When organizations across different financial channels, such as mortgage, credit card and auto lending, run your credit report, that activity affects your FICO® score.
A lower credit score can affect your mortgage interest rate and possibly your eligibility for approval. Opening another credit application is not something to treat as unrelated to the home loan already in progress.
Before you act: Ask your loan officer about any planned credit application. Discuss it before authorizing another organization to run your credit.
6. Don’t Close Credit Accounts
Some buyers assume that having less available credit makes them less risky and more likely to receive mortgage approval. That assumption is not correct.
Your credit score reflects more than your payment history. Important components include the length and depth of your credit history, along with how much credit you use as a percentage of your available credit.
Closing credit accounts negatively affects those aspects of your score. Trying to simplify your finances by closing accounts is not the same as improving your mortgage qualification.
Before you act: Leave account-closing decisions for a conversation with your loan officer rather than assuming fewer open accounts will help.
Keep Your Lender Informed About Other Changes
Purchases and credit accounts are only part of the picture. Be upfront about changes in your income, assets or credit. If your job or employment status has changed, share that information with your lender as well.
These changes need to be reviewed with your mortgage qualification in mind. Your loan officer can explain how a financial decision may affect your home loan, but that conversation is most useful before you act.
You do not need to decide on your own whether a change is important enough to mention. Fully disclose what has changed or what you intend to do, then ask for guidance.
Your Next Step: Ask Before Acting
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.
Write down any financial changes you are considering and review them with your loan officer before taking action. If you have questions about how a decision may affect your mortgage, reach out to Ed Parcaut to discuss your next step.
