Things to Avoid After Getting Pre-Approved for a Mortgage

Getting pre-approved for a mortgage is a significant milestone in the home buying process, but it doesn’t mean your mortgage is guaranteed. After pre-approval, lenders continue to evaluate your financial stability until the final mortgage approval. To ensure nothing jeopardizes your mortgage approval, here are key things to avoid during this critical period.

1. Changing Your Source of Income

Stability is key when it comes to mortgage approval. Changing jobs or your source of income after getting pre-approved can raise red flags for lenders, especially if the new job is in a different industry or offers variable income. Lenders prefer borrowers with a steady employment history, so it’s best to avoid any job changes until after your mortgage is finalized.

2. Taking on Market Exposure

While investing in the stock market can be profitable, exposing your finances to unnecessary risk during the pre-approval period could affect your lender’s perception of your financial stability. Selling off investments or making large financial moves could reduce your available savings, which could be a factor in the lender’s final decision.

3. Making Major Lifestyle Changes

Big lifestyle changes, such as taking extended time off work or starting a new business, can impact your income and financial stability. Lenders rely on your current situation to assess your ability to repay the mortgage. If your lifestyle changes drastically, you might be seen as a higher risk, which could lead to delays or even denial of your mortgage.

4. Applying for Additional Lines of Credit

After pre-approval, avoid applying for new credit cards, car loans, or personal loans. Each time you apply for credit, it results in a hard inquiry on your credit report, which can lower your credit score. Additionally, taking on new debt increases your debt-to-income ratio, making you appear riskier to lenders. This could negatively affect your mortgage approval.

5. Missing Payments on Current Debts

It’s crucial to keep up with your debt payments after pre-approval. Missing even one payment on your credit card, student loan, or other debts can damage your credit score and cause the lender to reconsider your ability to manage a mortgage. Maintain timely payments to keep your financial profile strong.

6. Getting a New Car Loan or Lease

It may be tempting to buy or lease a new car, but taking on a new car loan or lease right after pre-approval can increase your debt-to-income ratio, which could hurt your mortgage application. Lenders might question whether you can afford both a car payment and a mortgage payment, leading to complications in the approval process.

7. Making Large Purchases

Avoid making large purchases on credit, such as buying new furniture or appliances before your mortgage is finalized. Large purchases increase your debt load and can impact your available funds for closing costs or your down payment. Wait until after your mortgage is secured before making any big-ticket purchases.

8. Draining Your Savings

While the pre-approval process assesses your financial health at a given time, lenders will double-check your finances before final approval. It’s essential to maintain a healthy savings balance, as your lender will want to ensure that you have enough for a down payment, closing costs, and emergency reserves. Avoid draining your savings account for unnecessary expenses until after your home purchase is complete.

9. Switching from a Fixed to a Variable Income

Switching from a salaried job to freelance or contract work can be seen as risky by lenders. Variable or inconsistent income streams make it harder for the lender to predict whether you’ll be able to make your monthly mortgage payments. Stay in your current job or income situation until after you’ve closed on your home.

10. Cosigning for Someone Else’s Loan

Cosigning for a loan puts you on the hook for that debt. Lenders will consider the cosigned loan as part of your debt obligations, which can increase your debt-to-income ratio and potentially disqualify you from getting your mortgage. While helping someone else can be commendable, it’s best to avoid cosigning until after your mortgage is secured.

11. Ignoring Financial Updates from Your Lender

Stay in close communication with your lender after pre-approval. If your lender requests additional documents or updated financial information, respond promptly. Delays in providing requested information could slow down the mortgage approval process or raise concerns about your financial stability.

Conclusion

The time between getting pre-approved for a mortgage and closing on your new home is critical. Avoiding these common mistakes can help ensure a smooth home-buying process and prevent any last-minute disruptions to your mortgage approval. If you have questions or concerns during this period, don’t hesitate to reach out to us at Mortgages for Less. We’re here to guide you every step of the way.