Tips to ensure your mortgage preapproval remains intact until closing
You’re preapproved for a mortgage. That deal isn’t sealed until you leave the closing table. What you do until then can help, hurt or kill your pending loan application. So what can you do (and what should you avoid doing) to make sure your closing goes off as planned?
■ Review the loan commitment
“There have been dozens of regulatory changes in recent years,” says Staci Titsworth, PNC Mortgage vice president and regional manager.
“Review the loan commitment for any outstanding conditions,” she says. “It will say what conditions need to be met.”
So even though you’ve been provisionally approved, the lender might need more information about such things as gaps in your resume, an explanation of where your down payment dollars came from and updated salary numbers.
■ Don’t set yourself up to be ‘house-poor’
When you are approved for a $300,000 home loan, that doesn’t mean you can buy a $300,000 home.
That monthly payment probably will include additional costs that aren’t reflected in the house’s sales price, such as homeowners association dues, property taxes, flood or storm insurance and private mortgage insurance, Titsworth says.
Think about a monthly payment that’s comfortable for you, says Katie Miller, vice president of mortgage lending for Navy Federal Credit Union. Just because a lender is willing to give you a certain amount doesn’t mean you have to take it all.
Draft a shopping budget based on the loan terms and a monthly payment that’s comfortable.
■ Create a paper trail
Be scrupulous in documenting every dollar that doesn’t come from your regular income, Titsworth says. Today’s homebuying regulations are a lot stricter.
You probably think that once you’ve been preapproved, you can stop putting away savings for your new home.
Not so, says Barry Zigas, director of housing policy for the Consumer Federation of America.
■ The rules aren’t more forgiving for repeat buyers
When you buy a home, there are 5 C’s, according to Titsworth. These are the things that are analyzed by underwriters — the experts who crunch the numbers on your loan and your ability to repay it:
1. Credit
2. Capability
3. Collateral
4. Character
5. Cash
Underwriters don’t make allowances for new or repeat buyers, she says. Because underwriting is federally regulated and the number of times you’ve purchased a home isn’t a factor, underwriters won’t even know whether you’re a newbie buyer or a seasoned pro, Titsworth says.
■ No big buys (without consulting the lender)
Until you leave the closing table, the mortgage lender is your new financial quarterback. That means you should make no big purchases with cash or credit cards unless you run it past the lender first, Titsworth says.
The lender has to assess your debt-to-income ratio and your ability to repay the loan, and suddenly depleting your cash or running up credit card balances can alter those numbers. Both lenders and their regulators want to know if those numbers change, Titsworth says.
And if that debt-to-income ratio changes too much, it could cost you the loan, so maintain a stable financial holding pattern until after the closing, Miller says.
■ Pay bills on time
Lenders see late payments as a sign of financial stress — reasoning that if you had the money, you would pay bills on time. The effect of a late payment will vary with your payment history, Titsworth says.
Continue to display the good behavior that got you that mortgage preapproval in the first place. Make sure everything is paid on or before the due date.
Never let anything lapse 30 days. And just in case you have a creditor who’s slow to credit your on-time payments or who may have reported a payment late when it wasn’t, use a method that allows you to demonstrate when you paid — such as an electronic check or a paper check sent by certified mail.
■ No new credit
Between mortgage preapproval and closing, your mortgage lender wants to be the only new creditor in your life.
Each time you apply for credit, several things happen simultaneously. The request alone can lower your score, according to FICO, the company that pioneered credit scoring.
If you get new credit and use it, your debt load will go up. If you don’t use it, your access to more credit (and debt) could still scare your mortgage lender.
When any of your financial numbers change, lenders will likely need to re-evaluate their mortgage offer. That means the institution also could decide to loan less money, charge a higher rate or not make the loan at all.
“We certainly see situations where the car lease will run out — just before or after someone is approved for a home loan,” Titsworth says. And that new lease is $50 to $100 more.
■ Don’t co-sign
When you co-sign a loan, that debt goes on your credit history and counts as your own. That means lenders include the entire balance as if it’s yours alone when they calculate your debt-to-income ratio, Titsworth says.
So even if the borrower pays every bill on time and you never have to contribute a dollar, co-signing could still impact your ability to borrow.
Even after closing, a homeowner “should give serious consideration to the financial implications should they be left holding the bag,” says Bruce McClary, spokesman for the National Foundation for Credit Counseling.
■ Read your closing docs
Lenders are now required to share the closing documents before closing, so read them and get familiar with them, Zigas says.
If you don’t understand what you’re reading, this could also be the time to hire a real estate attorney who represents you alone.
It’s also a good time to do a little more due diligence on the house, Zigas says.
