There’s no secret password when it comes to getting a mortgage. But while most people know what to do to get a mortgage — or get a better rate — fewer people give thought about what not to do.
Whether you’re preparing to apply or just got approved, there are perhaps more “don’ts” than “dos” when it comes to getting a mortgage.
New Credit Is Bad Credit
Never apply for any new credit while you’re trying to get a home loan. Opening new credit decreases your net worth by giving you more available debt. This makes you a riskier investment in the eyes of a mortgage lender.
As such, you can suffer from higher interest rates or even get denied a loan. This includes co-signing for other people’s credit, which is the same as applying for your own credit in the eyes of the bank.
Opening new bank accounts and moving money between existing accounts is also a bad idea, even though you aren’t technically applying for any new credit.
And while we’re at it, leasing a car might not be the same as buying one but it also falls under this general category of avoiding new debts.
Quitting Your Job
This one is pretty much a no-brainer. While your credit score and credit history pay a big role when it comes to whether or not you get a mortgage, so does your income.
Quitting your job without having another one lined up is never a good idea, but when you’re applying for a home loan, it’s just about the worst idea out there. Switching careers isn’t the best plan either, even if you have a job waiting for you.
Lenders want to know that you have a steady income stream that (probably) isn’t going anywhere.
Depositing Phantom Funds
Underwriters want to be sure that all funds in your bank accounts are actually yours and not money your parents gave you to make it look like you have more funds than you actually do.
Talk to a mortgage advisor before you put anything into your bank account that doesn’t come from a payroll within 60 days of applying for a mortgage. After 60 days, mortgage lenders are less interested in having a paper trail for everything.
If you’ve just had some kind of cash windfall, keep the money in your mattress until after you’ve closed.
The exception? Properly documented gifts. Talk to your mortgage advisor about creating the right paper trail for gifted money.
Ins and Outs of Credit
Closing old credit accounts can potentially lower your credit score, as the length of your credit history is as important as what you’ve done with your credit. Discuss it with your advisor before you close any outstanding accounts.
The same goes for paying off unsecured credit lines or credit cards while you’re applying for a loan. When you pay off your outstanding consumer credit accounts, you might not be able to use the money for a down payment.
While on the subject of credit cards, we should say that you generally should not be charging significant sums on your credit card before or during the loan application process.
Try and pay off whatever you charge every month. This is because even a few points can make a significant difference in what you pay for your home over the life of the loan in the form of interest.
Discuss your specific situation with your mortgage advisor.
Listen To Your Advisor
If there’s one piece of advice that you should take away from this article, it’s consult closely with your mortgage advisor throughout the process. They’ll be able to tell you what to do and not to do in a manner far more specific to your situation.
Still, be mindful of your credit and remember it is under especially close scrutiny during the mortgage process. Keep your eyes on the prize — your new home.
Nicholas Pell is a personal finance writer based in Los Angeles, CA. He is the last of the die-hard renters.