Ok, so you’ve gotten a pre-approval to buy a home! You are excited and ready to start shopping. But slow your roll… there are specific requirements that you must continue to meet until your closing date, or you risk the lender denying to forward your loan.
1. Change in Employment Status or Income
When you apply for a mortgage, you will need to show proof of employment and income. This includes not only how much you earn, but a history of employment that should go back at least 2-3 years. Your mortgage application was approved based on the employment information you provided and any change in this information may impact your ability to qualify for the same loan amount. If the lender doesn’t think you can still afford to make the monthly payments in the pre-approval, then your application will need to be recalculated.
2. Applying for Additional Credit
Your credit score is used to help determine the rate and amount you are qualified to borrow. The higher your credit score, the better rate you will qualify for. With that in mind, this is not the time to finance a new car or apply for a new line of credit or personal loan. This will impact both your credit score and your debt to income ratio and could cost you your pre-approval.
3. Missing Bill Payments
As I mentioned, your credit score and debt to income ratio are major factors in determining the mortgage loan amount you can borrow. Paying your bills on time is one of the most important factors in maintaining a healthy credit score and debt to income ratio. Your credit score decreases and debt ratio will change when payments aren’t made as agreed upon and the lender will see you as a higher risk of default. I mean, if you aren’t making your bill payments, why would you make your mortgage payments? Paying your bills on time is one of the simplest ways to ensure the pre-approval is maintained.
4. Change in Spending Habits
You may think that this is a good time to start shopping for new furniture for your new home. However, an increase in your spending during this time can change your debt to income ratio, and can cause a lender to revoke the pre-approved amount. It is important to not change your spending habits drastically during your pre-approval. Is racking up additional credit card debt worth losing your dream home?
The bottom line is that a mortgage pre-approval doesn’t mean your loan is in the bag. Any of the above factors can give the lender pause and concern about your ability to repay your loan and then you’ll be left starting the approval process over and likely getting less desirable terms.