How much can you afford?
Most homebuyers begin the process by searching online for homes for sale, according to the National Association of Realtors. With no idea of how much they can spend on a home, there they are, surfing the Internet for homes for sale.
You know better than that, right? You know that the first step in the process is to see a lender to get pre-approved for a mortgage. That way, you won’t waste your time or be hugely disappointed by looking at homes you can’t afford.
Something you may not have been told, however, is that once you have loan preapproval it is critical that you make no changes to your financial picture until after the loan closes. In other words, that preapproval is not a guarantee that you’ll get the loan regardless of changes in your finances.
Here’s the Secret
Well, it’s not really a secret, it’s just not widely known to consumers, which is a pity really. Your lender will perform what is known as a “soft pull” of your credit just prior to closing. It’s known as “soft” because it doesn’t impact your credit score.
The lender is looking for a change in your credit score and checking for new credit accounts and other changes on your reports. If any are found, your debt-to-income ratio will be re-calculated. Depending on the changes found, your loan may not close.
Imagine, after all you’ve been through with price negotiations, the home inspection, perhaps additional negotiation, the appraisal and more, the lender tells you at the last minute that the house won’t be yours.
What to Avoid
It’s tempting to want to shop for new appliances and furniture once you’ve found your new home. Do not, however, give in to that temptation.
In fact, don’t change even one aspect of your financial picture (including changing jobs) from the time you are pre-approved for a mortgage until closing. Do not open new accounts. In fact, don’t even apply for new credit. Do not make large purchases on credit or otherwise change the income stated on your original loan application.
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