The Do’s and Don’ts of Applying for a Mortgage

A big dream for many people is buying their own home. Before you take that next step, it’s important to understand how the mortgage loan process works and what you can do — or shouldn’t do — before applying for a home loan.

Getting a mortgage is typically a collaborative effort between you and the lender. They’ll ask you for financial documentation like tax returns and W-2 forms, bank statements and more.

Don’t Change Your Job

Mortgage lenders take a look at every aspect of your financial life during the home loan process, and this includes your employment history and income. They want to see that you have a steady income so they can be sure that you will be able to afford your monthly payments. Changing jobs can make it hard to prove that you have a stable source of income and can jeopardize your loan approval. While there are a few exceptions, it is generally better to avoid changing jobs while going through the mortgage application process.

If you have a job change planned, let your lender know as soon as possible so they can adjust their underwriting process accordingly. They may request updated pay stubs, a new Verification of Employment (VOE), and other information in order to verify your employment status and income. They will likely request this documentation anyhow, so it is best to be proactive and provide it as soon as possible.

It is possible to change jobs while applying for a mortgage, but it is important to keep in mind that the loan will need to close on time. It is not a good idea to switch jobs right before or during the closing process, as this can cause delays.

Some job changes are a no-go for mortgage lenders, including switching from salaried to commission pay and taking a promotion. These types of changes can make it harder to qualify for a mortgage because the lender will need to see more consistent income in order to approve you for a loan.

It is also a good idea to not apply for any new credit cards or loans during the mortgage application process. This can hurt your credit and skew your credit utilization ratio, which can also impact your ability to qualify for a mortgage. Similarly, it is a good idea to wait until you are approved for a mortgage to purchase large items such as furniture, appliances, or that new car in the garage. In many cases, this is a good way to save money and can actually help you make your payments on time.

Don’t Change Your Income

The mortgage application process is a critical point in time when your financial stability is under scrutiny. This is because a home loan is a significant long-term commitment, and lenders must verify that your income is sufficient to make the payments. It goes without saying that a stable employment history is a crucial aspect of qualifying for a mortgage. However, mortgage underwriters also look at the consistency and reliability of other income sources to determine whether you are capable of affording a home. This is why it is important not to change your income, especially during this time of preapproval.

If you change your job during the mortgage process, it can raise a red flag to underwriters and delay or even derail the loan approval process. Lenders typically want to see that you have been employed in your current role for at least two years. If you switch to a different industry, it may also require a written explanation of why the move was made.

It is important to not take on any additional long-term debt during the mortgage process as well. This includes taking out a personal loan or obtaining a line of credit, which could affect your ability to qualify for a mortgage. Similarly, you should avoid cosigning for anyone during this time as it will increase your liability and debt-to-income ratio.

Also, avoid making large purchases on credit during this period, as this can skew your credit utilization ratio. In general, it is best to wait until you’ve closed on your mortgage to purchase large items like a new home or car. Lastly, don’t open or close credit cards during the mortgage process, and do not transfer balances from one card to another, as this could also impact your credit score.

Don’t Change Your Address

When you are trying to apply for a mortgage, the last thing that you want to do is change your address. The reason why is because this can actually jeopardise your mortgage application.

Lenders will look at your credit file and more specifically, where your address is registered. This is because they want to make sure that you are a reliable person who will be able to meet the repayments on their mortgage. If you are changing your address shortly before or during the mortgage process then this can raise red flags and they may question whether you will be able to meet the repayments.

It is also a good idea not to move your money around between different bank accounts. Mortgage lenders will want to see the consistency of your savings and investments over a long period of time. Moving your money between accounts could make it difficult for them to access the information that they need. There is also a reverse mortgage lender, which you might be interested in.

Lastly, it is important not to change your name or get married. This is because the lender will need to verify your identity and this can be difficult if you have changed your name or got married. If you have any debts, it is also a good idea to try and pay them off as much as possible. This is because the more debt that you have, the less likely it is that you will be approved for a mortgage.

Another thing that you should avoid doing is applying for lots of credit. The reason why is because this can raise red flags with the lenders and they will question your ability to repay the loan if you are constantly seeking new credit. It is also worth avoiding taking out any cash advances as these can be difficult to repay.

Finally, it is also important to keep up to date with your mail and ensure that your records are correct. This is because if any documents contain mistakes, such as typos on your pay slips or proof of address, the mortgage lender will not be able to accept these as valid evidence for your application. Make sure that you check over these documents carefully before submitting them to the mortgage lender and make any corrections that are needed.

Don’t Change Your Credit

Whether you’re buying a new home or refinancing, getting a mortgage is one of the largest financial decisions you can make. Lenders use your credit report to determine whether or not you can afford the loan, what interest rate you’ll get, and much more. Therefore, it’s important that you don’t change anything in your credit history before or during the mortgage process. Changing your credit can hurt your chances of qualifying for a mortgage and can lead to higher interest rates.

It’s important not to open new accounts, close old ones, co-sign on loans, or make large purchases before and during the mortgage application process. Lenders look for consistency and stability, so making changes in your credit history can raise a red flag and delay the mortgage process. You should also avoid taking cash advances on your credit cards or depositing large amounts of money into your bank accounts. Lenders need to be able to trace your income, and cash is not easily accounted for.

You should also not change your job before or during the mortgage application process. Many lenders prefer that borrowers be with their current employer for at least two years, and changing jobs can cause them to worry about your long-term employment and your stability. It can also raise questions about your income and your debt-to-income ratio, which can affect whether or not you qualify for a mortgage.

If you do change your job, it’s a good idea to talk with your loan officer before doing so. They can give you guidance on how this may affect your mortgage process and help you find a lender that will work with you.

It’s also a good idea to keep your spending habits consistent. This means not opening or closing credit cards, transferring balances between credit cards, or applying for new lines of credit, even if you’re pre-approved.