Ensuring a Smooth Loan Process
When buying a home, it’s critical to pay attention to everything going on in your personal financial world. The fact that you were “prequalified” for a certain loan amount by your lender won’t get you to the closing window if you’re not careful to watch your Ps and Qs throughout your purchase timeframe. According to the Federal Reserve’s most recent report, the two main reasons cited by lenders were collateral issues and debt-to-income levels, or in laymen’s terms, having too much debt. Here are some tips to help you understand how lenders think.
Secure your placement in the loan process
Don’t assume if you’ve been prequalified or your application is in underwriting that you don’t have to worry about additional acquisitions, credit card balances or significant income or job changes. Certain activities that will show up during the underwriting process can negatively affect put your approval.
Protect your Credit Status
Don’t create any new credit accounts throughout your purchase window. Stay current with your current credit accounts; don’t apply for any new loans, any new activity can negatively impact your current credit score. Subsequently wait until after you have closed the sale before you close any current or revolving credit accounts. Closing a credit card or credit account will negatively impact your credit score; it will show that your debt-to-income ratio has increased – not a smart move for borrowers. Also, don’t exceed your current available credit card limit. Credit scoring agencies state that you should keep your credit card balances under 30% of the limit during the mortgage loan process. Otherwise, your credit score will drop. Finally, it goes without saying to stay current on all your credit payments. Just one late payment in excess of thirty days will reduce your credit score.
Don’t Consolidate your Debt
Logically it would seem that consolidating debt is a good strategic move, but just the opposite is true. The credit system sees consolidation as a negative. Wait until after the sale closes to consolidate. In addition, do not add any new debt accounts during this process; don’t co-sign that new car loan for your son or daughter. The loan process should be viewed as a “quiet” credit time.
Stay Consistent
Utilize your credit accounts as you normally do; significant changes or patterns in your credit history on your accounts is seen as a red flag from lenders.
Keep an Eye on your Credit
Consumers have a legal right to monitor their credit activity. In addition to having access to a free credit report annually through FICA, the three credit bureaus (Equifax, Transunion and Experian) have websites you can access to watch your credit activity, If you notice any unusual or inaccurate activity, contact the bureaus directly and communicate this with your lender. Staying proactive during the lending process will help ensure a timely and hassle-free process.
Get in touch with The Dream Team as you start your real estate journey.
