7 Things That Can Sabotage Your Home Loan
You are well into the loan process. Your interest rate is locked, and your application has been submitted. You can rest easy now, right? Not necessarily. Whether purchasing a new home or refinancing an existing mortgage, there are obstacles to avoid if you want a stress-free approval.
1. Large bank deposits
During the application process, the bank statements you provide are reviewed for large deposits. Payroll deposits can easily be explained, and your loan officer will let you know how to document gift money. However, other large deposits can be a challenge. Why does it matter? If the money is a loan from another lender, friend, or family member, the monthly cost of repaying it could increase your debt-to-income (DTI) ratio and may put you above your lender’s DTI limits.
2. Closing credit cards
Your credit score is another factor that determines whether you qualify for a home loan. You might think that closing credit cards will help your credit score, but that’s not always the case. Part of your credit score depends on your credit utilization ratio. That’s the total of all your credit card balances divided by the total of all your limits. A 30% credit utilization ratio is typically recommended. So closing a credit card with a high limit and low balance increases your ratio and could potentially lower your credit score. A lower credit score might affect your interest rate and your loan approval.
3. Opening new lines of credit
You may be anxious to purchase appliances and furniture for your new home. There are some great deals linked to in-house credit cards or store loans. How could this be a problem? First, the purchase will require monthly payments, so your DTI ratio increases. Second, if the balance on your new card is more than 30% of the available credit limit, your credit utilization ratio goes up and your credit score could go down. Neither is a good thing when you are waiting to be approved for a loan.
4. Making late payments
Late payments of any kind can affect your mortgage application. Why? Missed payments erode the confidence your lender has in your ability to repay the loan. Late payments can also lower your credit score. Generally, payments 30 days or more past due are reported to the credit agencies. If you make a late payment, but otherwise have a record of paying on time, talk to your creditor to see if they will agree to remove it.
5. Changing your job or career
Consistent income is another factor a lender looks at when evaluating your loan application. Be cautious about changing jobs during the loan process. Even when you have an initial approval, your lender will often verify your employment again before issuing their final loan approval. If a job change is unavoidable, discuss it with your lender as soon as possible. The issue can be minimized if your new job is in the same field and doesn’t result in a decrease in income.
6. Not providing requested documents
During the loan process, you are asked to provide tax returns, pay stubs, W-2s, bank statements, and other financial documents. Your lender uses these documents to verify your income, assets, and debt. This verification must be done before the lender can approve your loan. If you don’t provide the documents your lender has requested, it can cause an unnecessary delay. Also, regardless of what is on the page, you always need to provide the entire document.
7. A low home appraisal or issues with the property
There is one obstacle that is pretty much out of your hands — a low appraisal. An appraisal determines the value of the property. Your lender uses it to calculate your loan-to-value (LTV) and whether your LTV is an acceptable percent. After all, the property is the collateral for your loan, and if you default on your loan, your lender wants to avoid a loss. When an appraisal is lower than expected, your loan officer will discuss your options for moving forward.
You can improve your chances of being approved for a home loan by avoiding some common pitfalls.
You can make the approval process easier by paying your loans on time, avoiding large deposits, maintaining your credit lines, delaying job changes, and providing documents quickly. By not sabotaging your loan approval, you save time and undue stress for yourself and your lender.
You can rely on the mortgage professionals at Axos Bank to help you through every step of the home loan process. Call 888-546-2634 to speak with an experienced mortgage specialist today.
7 Things That Can Sabotage Your Home Loan
This blog post was published by Axos Bank on August 14, 2020 and last updated on April 27, 2021.