What Not to Do After Your Mortgage Pre-Approval

A mortgage pre-approval is a lender’s conditional assessment of your borrowing capacity. It indicates the amount you might be eligible to borrow for a home loan, based on an initial review of your financial information. While an important step in the home-buying process, it is not a final loan commitment. Lenders verify all provided information and monitor your financial standing until the closing date. Maintaining your financial profile as it was at the time of pre-approval is important to ensure the loan proceeds as planned.

Do Not Alter Your Credit or Debt

After receiving a mortgage pre-approval, avoid actions that negatively affect your credit score or increase your overall debt burden. Opening new credit accounts, such as a new credit card, car loan, or personal loan, can significantly impact your debt-to-income (DTI) ratio. This ratio is a key metric lenders use to assess your ability to manage monthly payments and repay debt, and any increase can jeopardize your loan approval. New credit inquiries also result in a temporary dip in your credit score, which lenders continually monitor.

Making large purchases on credit, even with an existing card, can also be problematic. Buying items like new furniture, appliances, or a vehicle using credit can increase your outstanding balances and your credit utilization, both of which can lower your credit score. Co-signing a loan for another individual adds a contingent liability to your credit report. This means you are responsible for the debt if the primary borrower defaults, and this potential obligation is considered by lenders when evaluating your financial risk.

Closing existing credit accounts can also have a negative effect. Closing older accounts can reduce the average age of your credit history and potentially decrease your available credit, which in turn can increase your credit utilization ratio. This can lead to a lower credit score. Maintaining a perfect payment history on all existing obligations is crucial during this period. Missing even a single bill payment can result in late payment remarks on your credit report, which can substantially reduce your credit score and signal increased risk to your mortgage lender.

Do Not Disturb Your Finances

Maintaining stability in your financial accounts is important after receiving a mortgage pre-approval, as lenders meticulously review your financial transactions. Making undocumented large deposits or withdrawals can raise red flags for underwriters. All significant money movements, especially large cash deposits, require a clear paper trail to verify the source of funds. Lenders must confirm that funds for your down payment and closing costs are legitimately sourced and not from a new, undisclosed loan.

Changing bank accounts during the mortgage process is not advisable. Lenders prefer to see consistent financial history in stable accounts, making the verification process smoother and less prone to delays. Shifting funds between multiple new accounts can create confusion and necessitate additional documentation, prolonging the underwriting process. Depleting your savings for non-essential purchases can also be detrimental.

It is important to maintain sufficient reserves for your down payment and closing costs, which typically range from 2% to 5% of the loan amount, in addition to the down payment. Unexpected large cash outflows can leave you with insufficient funds at closing, potentially leading to loan denial. While paying off debts sounds beneficial, making large principal payments or closing accounts without consulting your lender can sometimes create unexpected issues or require additional documentation. Always discuss any major financial moves with your loan officer to ensure they align with the loan approval requirements.

Do Not Make Major Life Changes

Significant personal or professional changes can impact a lender’s assessment of your income stability and financial profile. Changing jobs after pre-approval can introduce uncertainty, even if it appears to be a promotion or a lateral move. Lenders consider factors such as probationary periods at a new employer, changes in pay structure (e.g., from salary to commission), or perceived instability in employment. These factors can affect the verification of your income and employment history during the underwriting process.

Quitting your job will have an immediate negative impact on your income verification. Without a verifiable source of stable income, lenders will withdraw their loan offer. Similarly, making significant career changes, such as moving to a different industry or transitioning to self-employment, can also complicate the income verification process. Self-employment income requires a two-year history of consistent earnings for lenders to consider it stable and reliable. Any such change can lead to delays or even denial of your mortgage application.