Crashing credit, buying recreational toys, co-signing a 'small loan' for your Cousin Fred... Few mistakes are more cringe-worthy to a lender - or a real estate agent - than when a client, well on their way to getting a mortgage that will allow them to buy the Waterloo Region home of their dreams, makes an impulsive financial decision that derails their mortgage loan approval.
Don't let that happen to you! Here are ten “don’ts” for you to remember as you wait on those joy inducing words from your lender: “clear to close.”
The Ten Top “Don’ts” When Waiting for Mortgage Approval
1. Don’t change or quit jobs or become suddenly self-employed.
Lenders require steady employment and income consistency. Being self-employed is no longer a bar to obtaining a mortgage, but you will need to have extensive financial records to back your claimed income stream up, and you won't be able to get those in just a few months. Change jobs - or strike out on your own - after you change mailing addresses.
2. Don’t buy a car (or boat, or RV, or four-wheeler…).
Purchasing a vehicle while buying a home could temporarily lower your credit score. And this does not just apply to a new everyday car. Motorbikes, RVs and even recreational 'toys' like a four-wheeler might all be helpful (and/or fun) when you move to your new Waterloo Region home, but wait on making such purchases until after you close.
3. Don’t purchase any other big-ticket items.
Similar to vehicles, wait until after you own the home you are hoping to buy before you splurge on that big furniture set or fancy home entertainment system.
4. Don’t over-use credit cards or be late on any payments.
This double-whammy hurts you both with the creditor and your mortgage lender. Limit your credit card use, and don’t let any accounts fall behind, even by a day or so. Late payments on accounts that report to credit bureaus can do almost as much damage to your credit score as skipping a payment altogether.
5. Don’t apply for new credit anywhere else.
Any new credit card or other line of credit will mean an inquiry, which will impact your credit score. Lenders will usually check your credit a second time right before final mortgage loan approval, even if you were preapproved a while ago, and new inquiries will result in delays.
A credit inquiry is a credit check, and this can be hard or soft. Hard inquiries are made with your permission for items like a credit card, mortgage, or car loan. Soft inquiries won’t show up on reports requested to evaluate your credit-worthiness.
6. Don’t “forget” debts on your mortgage loan application.
If you owe back taxes, have liens, or other liabilities, they will eventually be discovered as the mortgage loan closing process proceeds. Be truthful on your application, and you may even find that such things are not quite as much of a problem as you thought they might be.
7. Don’t spend your savings.
Don’t jeopardize your ability to make a down payment or pay closing costs by spending that money you’ve put aside. The chances are that you've worked very hard to save that down payment, so don't blow all that effort at the 'last hurdle' on your road to Waterloo Region homeownership.
8. Don’t make large deposits into your accounts.
A sudden cash infusion into your bank account will raise a red flag and require explanation. If you are receiving gift funds to help you meet a down payment on a new home, talk to your mortgage lender about what is legally required to document that money.
9. Don’t open, close, or change bank accounts.
Perhaps you are moving to a different province and want to open an account with a local credit union. Wait until after your loan is closed. New bank account activity will require a long paper trail and slow your loan process.
10. Don’t co-sign a loan for anyone.
This is a good rule-of-thumb whether you are applying for a mortgage loan to buy a Waterloo Region home or not. When you co-sign a loan, it can lower your credit score and raise your debt-to-income ratio (DTI), which lenders look at closely. Also, if the borrower defaults, you will be on the hook to pay it off—not a good place to be if you have a new mortgage too.
Don't Forget These Mortgage Do's!
Finally, there are a few actions you can “do” to help expedite your mortgage loan’s progress and help ensure your closing timetable stays on track.
Be sure to submit all your requested documents as quickly and thoroughly as possible. If you will be emailing documents, don't assume they have been received, make a quick call to ensure that they have.
Be responsive. Underwriters may often reach out for additional information, so attentive buyers will get their loan answers faster.
Once you have found the Waterloo Region home you want, immediately start shopping for home insurance quotes (not having one can really slow things down!).
