If you’ve finished the loan application process and are waiting for word on a mortgage approval, don’t blow it by turning yourself into a bad risk. You want to keep yourself poised in the best position for obtaining a mortgage with the lowest interest rate possible.
Regardless of the market conditions, it’s always a good strategic move to get preapproved for a mortgage loan. Once you know you’ll get the loan, and for how much, your offer will be much stronger because the seller will know the funding is in place. This is especially important in a competitive market.
The application process itself involves providing proof of employment, sending tax returns, running your credit report and reviewing your assets. This process generally takes a matter of days. In the meantime, it’s important to keep your credit risk as low as possible. To do this, you should avoid certain actions:
- Quitting your job. Are you considering making a move to the new company across town? Are you getting ready to change careers? Don’t do it now. You’ll essentially have to start the whole application process over because you’ll have a new set of circumstances and, worse, no history at your new job. A lender wants to see that you’re reliable, that you’ve had steady employment and that you have the money to make your monthly payment.
- Making a major purchase. Have you been thinking about buying that shiny new car? Now’s not the time. Lenders don’t want to see a major debt right as you’re about to take on a mortgage loan.
- Opening new lines of credit. If that retail store is tempting you with a big discount if you take out a new line of credit, stay strong. You’ll become a bigger risk because you’re increasing your debt. You could end up incurring a higher interest rate on a mortgage loan or not be able to get the loan altogether.
- Closing old credit accounts. While you might think you’re doing yourself a favor by cleaning out credit accounts you’ve held for a long time, the opposite is true. If you close an account, it subtracts from your overall credit history. The lender can’t see that you’ve had this credit history, including the length of time and the fact that you’ve made payments on time.
- Paying off credit lines or other debts. This is money that could go toward a down payment. You never know how much your loan amount will be, so you’ll want to have as much cash available as possible. You can work toward paying off debt once your mortgage is approved.
Once your mortgage approval is received, it’s important to keep paying all your bills on time so your credit rating remains as high as possible.
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