Your financial history and current portfolio are extremely important to the mortgage approval process to ensure you’ll be able to pay back the loan successfully. Even the slightest change in your financial footprint can have an impact, so here’s a list of 6 changes to be prepared to discuss when applying for a mortgage.
Making large deposits or withdrawals
Large deposits could be considered a red flag by loan underwriters, and the lender will ask about the source of those funds. New funds from a loan or new debt could put your loan approval at risk.
Collecting new debt or buying items on credit
New debt impacts your debt-to-income ratio. The extra debt payment may offset your income which decreases the financing amount a lender can approve. New credit inquiries from other credit applications also may harm your credit score.
Closing existing credit accounts
Closing an existing account hurts your credit score. You can pay off the balance, but we recommend keeping the account open. If you are required to pay off any accounts as part of your loan agreement, you can do so at closing.
Paying on collection items
Paying off or paying down debt that’s been turned over to a collection agency can impact your credit score in the short-term because all new activity is reported to the credit bureaus. Talk to your loan advisor beforehand to discuss any potential impact to your loan application.
Allowing friends or family to cover costs
This includes the home appraisal, earnest money, down payments, etc. Gifts from family members are allowed under certain guidelines, but talk to your loan advisor in advance.
Changing jobs or employment status
Loan approval is based on income, employment history and consistency, your compensation structure, etc. Connect with your loan advisor before an employment change to determine how it could affect your loan application.