5 Things You Should Never Do After Applying For A Mortgage

Looking into the dos and don’ts of home ownership is an essential step on the journey to owning a home. Buying a house is a deeply exciting and rewarding experience, especially for first-time home buyers, but it can become stressful and downright scary when the time comes to apply for a mortgage. To protect your future success, it's crucial to understand all of the possible missteps after you’ve applied for a mortgage, as they can be more costly than the average home hunter may realize! Keeping all of the details straight while searching for your perfect place is overwhelming, so we’ve put together a short list of the 5 things that would negatively affect your application for a mortgage.

1. Don’t make any large purchases, like cars or new furniture, on credit

If you’ve applied for a mortgage you’re probably already fantasizing about how your future home will look and feel. That means decorating, interior design, gardening, and of course painting plans. For first-time home buyers, this advice may be especially hard to take, so before you get started, take a step back to make sure both you and your wallet are ready to make these purchases, in all of the excitement they tend to add up quickly. Any new debt will lead to new monthly obligations and cause a higher debt-to-income ratio. 

Debt-to-income ratio is defined by your monthly debt payments totaled up and divided by your total monthly income. It’s something to keep in mind because it directly affects your credit score. According to Nerdwallet, experts recommend keeping credit utilization under 30% to maintain a good credit score. If you’re able to avoid making these large purchases when applying for a mortgage your credit score will remain in good standing, as will your mortgage. 

Mortgage lenders will be checking your debt-to-income ratio, and if they consider it to be too high, you may no longer be qualified for your mortgage loan. Great things come to those who wait, so try your best to fight the urge to splurge your home’s decor and focus on the big picture -- keeping the mortgage loan.

2. Wait on applying to new jobs

Be consistent where it counts. Scaling down on big changes in your work life by sticking with the same job long-term or continuing your usual payment methods at work improves the chances of your mortgage application’s approval. Lenders will be looking closely at your job history to check that you have a dependable source of income, they should never see inconsistencies after you apply for a mortgage. For lenders, consistency means credibility. They want to know that they can trust that you’re able to meet the repayment terms. As you may already know, home loans often have long terms of 15 to 30 years; they want to make sure that you’re in it for the long haul. If lenders see repeated inconsistencies or long-term unemployment in your work history, your application may be denied.

Mortgage lenders will be checking out previous jobs you have had, but your last two years of employment will be of utmost importance. Establishing stability with your employer and wages will be the key to smooth sailing when applying for your mortgage. 

3. Don’t apply for new credit or close existing credit accounts

Nobody wants an unexpected credit score drop after they’ve applied for a mortgage. Keeping your credit steady can make all the difference when maintaining a loan, so postpone doing anything that could affect your current credit score. Remember that when your credit is under review by several financial institutions for items like mortgages, auto loans, or credit cards, it might cause the numbers in your report to fluctuate. Credit inconsistencies are detrimental and are sure to negatively affect your application for a mortgage. A homebuyer’s nightmare is ending up with a higher interest rate than the one they had originally been approved for, or worse, ruining the application entirely. 

Simply put, try not to shut any accounts during the mortgage process. Having the evidence that you’ve paid your bills on time for a long time has a huge impact on your credit rating - in a great way! Having a lengthy paper trail of payments made shows that you’re trustworthy. When lenders see this sort of strong, positive presence in your financial history when evaluating your application they’ll be much more likely to work with you on a mortgage.

4. Don’t deposit large sums of cash into your bank account

It's natural to think that having a lot of cash in your account makes you more likely to qualify for a home loan. But don’t trust your intuition on this one, because unfortunately, cash deposits can do the opposite! 

Large sums of cash should never be deposited into your accounts when applying for a mortgage. During your home hunt it should be your goal to make life as easy as possible for lenders to find out more about your financial history, and cash deposits are hard to trace. If lenders encounter unexplained deposits while reviewing your accounts they may start questioning where the funds came from, and could even end up believing you used credit cards as cash advances. Individuals who receive a large amount of their income in cash should double-check what is required for evaluating large deposits here.

So if you’re considering depositing a big check into your savings, or finally cracking open that piggy bank, please talk with your trusted loan officer first about the best way to document all transactions properly – don't forget to make copies, too! Think of lenders as if they were detectives: maintaining a paper trail and clear evidence is key.

5. Avoid co-signing loans

Nobody can pour from an empty cup. The final item on the list of things you should never do after applying for a mortgage is co-sign other loans. Although co-signing is a generous act, especially when it’s done to help loved ones, it comes with obligations and can be detrimental if you need a mortgage loan. Oftentimes, co-signing instantly raises red flags from potential lenders. Remember that any missed payment is reflected in your own credit score, which could affect your personal mortgage down the road. Whether you’re a first-time or experienced home buyer, we advise you to prioritize your own loans before helping anyone else.  

The worst possible scenario for a lender is a borrower who fails to make their payments. This can leave a lender covering not only the borrower’s shortcomings on the loan but additionally the mortgage itself - putting an immense strain on their finances.

The journey towards home ownership is an incredibly intense, often joy-filled time. Applying for a mortgage is a big step, and we’re hoping you’ll be able to avoid a lot of the stress by guiding you through what not to do after applying for a mortgage. Team Horton is here to help with any and all mortgage questions, so if you’re a first-time homebuyer or looking to buy another home please give us a call and we’ll help you access all the information you need to make an informed decision about your real estate needs. Also, if you’re located in the Charlotte area, take a look at our Buying a Home in Charlotte Guide to help get you started.