We’ve all heard the horror stories... those of hard-working people who saved, scraped and scrambled to prepare to purchase their dream home. They got pre-approved by their lender, worked with a Realtor to find the perfect house and had their offer accepted!
Then the nightmare sets in of trying to fulfill their lenders requests, the back and forth of documentation – last minute paperwork needing to be filed, copies of bank statements and pay stubs – only to have the deal fall through at the final hour because small decisions they made throughout the process caused their credit score to fall and in the midst of planning for closing- they found themselves no longer qualified for the purchase. Exhausted yet?
It’s a sad story but one that could happen to anyone if they do not plan accordingly. At Ruoff Home Mortgage, we’ve developed some tips for you to avoid these nightmares because we are committed to helping you achieve your purchase or refinancing dreams.
Unless you enjoy pain and suffering, there are six things you definitely should NOT do when you are in the process of purchasing or refinancing your home.
If you allow someone other than your mortgage company access to your credit, you are risking someone pulling your credit, which can lower your credit score. This can lead to a higher interest rate. Many people make the mistake of thinking that if they “lock” their rate with their lender that it cannot change. That is true to an extent- it cannot change due to market fluctuations- but if your credit score drops, your interest rate can change to reflect what the rate would have been if you had that lower credit score on the day you locked your rate. A lower credit score can even lead to the denial of your loan, in some cases. You want to protect your score while going through this process.
It can be tempting to apply for new credit, especially when you’re in the process of purchasing a home and you are trying to save money. No matter what kind of savings you think you might get by taking out a new credit card, doing it while in the process of purchasing or refinancing your home is NOT the time. Your lender WILL continue to update your credit report throughout your loan process before you get to closing.
If you add new debt, you are adding more time to the loan process and potentially risking your loan all together. A big part of being approved for a loan is having the right debt-to-income ratio- this is a term we use to describe the percentage of your monthly income that is already committed to other debts you might have (like your new home, monthly car payments, student loans or credit card payments). If you take on new debt, you will be causing this ratio to fluctuate.
Throughout the process of getting approved for a mortgage and preparing to get to the closing table, you’ll want to keep your balances on your credit cards as low as possible. We do not recommend closing out any of your established credit card debt that is in good standing- that can also drop your score. But paying your credit card debt down to at least 40% or less of your usable limit will help your credit score and will also keep your minimum monthly payments low. If you max out one of your credit cards during the process, it will show up on your report when your lender does a “soft pull” and could lower your credit score and change your monthly payment which could cause you to no longer qualify for your mortgage.
It’s best to wait to refinance any debt until after closing to prevent unplanned pulls on your credit.
As we mentioned before- a big part of your credit score determination is due to the age of your “trade lines” or lines of credit. The older the credit line, the better reflection it has towards your credit score.If you close a credit card that you’ve had for years – it could damage your credit score. Unless your lender requests that you close a line of credit due to qualifying purposes, do not do it, please.
By now we’ve probably established that you should not open or close accounts, especially without talking to your lender first. In addition- do share information regarding your assets and retirement income with your Loan Officer. If we know and understand the whole financial picture, we are better equipped not only to help you qualify, but also to get you the financing that is most beneficial for you.
Remember, your lender wants to see you successfully to closing. If you have any questions regarding whether or not you should do something, give your Loan Officer a call. They will be able to direct you on how to protect your credit and prepare for your closing.
In addition to all the things you should NOT do, it is important to remember this quick checklist of things you should do:
This information will help you get to closing successfully and with much less headache and heartache along the way!
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