5 Things Not to do Before Applying for a Mortgage

March 19, 2014

At eLEND, we know applying for a home loan can be intimidating – especially for first time buyers. That’s why we want to help you be as educated and prepared as possible when it comes to securing home financing. In this post, we’ll talk about a few things you should avoid before applying for a mortgage.

Let’s make one thing clear right off the bat – if you’re guilty of one of the things on this list, don’t panic. The list below is intended to simply give you an idea of how to be the best possible loan candidate you can be. If you’ve done one of the following things, you may need to provide some additional documentation, but it doesn’t necessarily mean you’re doomed.

So without further ado, we present the top 5 Things Not to do Before Applying for a Mortgage:

1. Make a major job change.

It’s one thing if you get promoted within your company or switch from working in the office to doing the same job from home – it’s quite another thing to quit your $60K/year corporate sales job to follow your dream of being an actor. And since mortgage lenders carefully consider your income when evaluating you for a mortgage, it’s also not recommended to switch from salary-based pay to commission right before applying.

2. Make a major purchase.

It’s better to hold off on buying a new car, boat, RV, motorcycle or anything of the sort, until you get that approval letter from your lender. Making large, expensive purchases will affect your debt-to-income ratio, which lenders use to help evaluate your creditworthiness.

3. Transfer large sums of money between accounts.

Mortgage lenders prefer to see stability and consistency when it comes to a potential borrower’s finances. If you do need to make a large transfer or deposit shortly before applying for a mortgage, make sure you have legitimate documentation that explains the reason behind it.

4. Close credit card accounts.

While a lot of consumers might presume that having fewer credit accounts is a good thing, closing major credit card accounts could inadvertently raise your debt-to-credit limit ratio, also known as the credit utilization ratio.

For example, let’s say you have two major credit cards. Combined, your credit limit from the two cards equals $10,000. And let’s say you have a $2,000 balance on one card and a zero balance on the other. Your combined balance would be $2,000 giving you a credit utilization ratio of 20 percent. Now let’s say the unused card with the zero balance has a credit limit of $6,000. If you were to close that account, your credit limit would drop to $4,000. And since your balance is still $2,000 that means your credit utilization ratio would jump from 20 percent to 50 percent – something you definitely don’t want!

5. Open new lines of credit.

While we’re on the subject of credit cards, you should avoid the temptation of opening a new line of credit if you’re about to start the mortgage application process. Having too many inquiries is never a good thing for your credit score, whether you’re about to get a home loan or not. But when applying for a mortgage, it is especially important to resist the urge to “save 20% today” when you apply for that retail store credit card at checkout.

Keep in mind that these things aren’t necessarily going to kill your chances of getting a mortgage. However, avoiding these practices will definitely help your chances of getting approved. If you’d like to learn more about home loan options from eLEND, contact us today by calling 800-634-8616 or by submitting your information in the Free Rate Quote form on this page. You’ll be connected with a qualified mortgage consultant who can help you review different options and provide you with a no-obligation rate quote.