While purchasing or refinancing your home, have you ever stopped to wonder if buying that car or depositing your lifelong stash of cash under your bed would have any effect on getting the best mortgage rate?
Are you a first time home buyer and bewildered at the sea of financial documentation that your Mortgage Advisor has asked you to collect?
Either way, you’re probably too “deer in the headlights” to figure out what you should or should not be doing during this critical time.
Well, worry no more!
We’ve compiled a list of Mortgage DO’s and Mortgage DO NOT’s so you’ll know exactly what and what not to do during the mortgage process to get the best mortgage rate.
Tips for Establishing Credit Prior to Obtaining a Mortgage
First, let’s talk about what you should be doing prior to obtaining a mortgage.
Use these tips as general best practices to establish a good credit history, which can benefit you in other areas of personal finance too.
Open a Bank Account
Open a bank account and use it responsibly. This is the first step to establish a financial history.
Traditional bank checking and savings accounts are generally not reported to the three credit bureaus. However, if you’ve had a mishap and one of these type of accounts has been “charged off”, most likely it’s been reported as a collection to the credit bureaus and you’ll want to get this taken care of with your bank or collection agency.
Become an Authorized User
Establish credit by piggy-backing someone who already has a good credit history and is willing to add you to a credit card as an authorized user.
Be aware that any default of credit on their part will affect your credit negatively.
Get a Regular or Secured Credit Card
When a credit card is “secured”, it means money must be deposited with the credit card issuer in order to open the account.
In the event of payment default, the credit card issuer may use that money on deposit to pay off the card and close it.
A credit card issuer will be more likely to issue this kind of card because there is very little to zero risk for them in the event of default.
Shop around and only apply for a card if you can meet the lender’s requirements, responsible use will help build a good credit history.
Mortgage Do’s (to Get the Best Mortgage Rate)
Once you initiate the home loan process, there are certain actions that can help or hurt your chances of securing the best possible interest rate or terms on your mortgage.
Here is a detailed list of exactly what to do while obtaining a mortgage to get the best mortgage rate.
Continue Paying Off Debt
Continue paying off debt, it helps keep your debt ratio low.
Whether you’re making minimum monthly payments or you’d like to pay a little extra, just make sure you are saving enough money for a potential down payment and closing costs.
Explain Credit Blemishes
Do explain any credit blemishes and credit inquiries to help get your mortgage approved.
Don’t be embarrassed about any issues, your Mortgage Advisor is the best person to help advocate for you and they need all of the details to do it.
Authorize eConsent
Be sure to authorize your eConsent to receive and sign disclosures electronically, this ensures a smooth and efficient process.
Mortgage companies do everything securely but if you have concerns, please make sure and address them with your Advisor but always remember to sign everything as quickly as possible.
Submit All Information Quickly
Submitting all the information requested by your Advisor within the timeframe they provide means getting your mortgage approved fast and ensures it can close on time.
Delays can be costly, you may have delay penalties written into your purchase contract and there can be charges to extend your interest rate lock.
Retain Financial Documentation
It’s important to keep originals of all paystubs, bank statements, and other financial documentation. This also includes divorce decrees and any other court related documentation.
What? I have to provide court related documentation? The answer to that is, yes, you might!
Speak with your Mortgage Advisor about your specific situation so that they may guide you down the correct path. Any last minute surprises may cause delays and have the potential to impact your qualification.
Retain Home Sale Documentation
Do provide documentation for the sale of your current home, including a sales contract, closing statement, etc.
Notify Your Mortgage Advisor of Changes
Notify your Mortgage Advisor of any changes in employment or marital status. (i.e. change of employer, recent raise, transfer, change of pay status, divorces, marriages, etc.)
Mortgage Advisors have to provide all of the details to Underwriters, who then approve your Mortgage.
Many verifications are done in the last day or two before your Mortgage closes and undocumented changes may again cause delays and impact qualification.
Lock In Your Mortgage Interest Rate
Do contact your Advisor to lock in your Mortgage interest rate.
Conversations about your interest rate are important to have as there are a lot of moving pieces tied to them such as, related charges or credits, how long your rate is locked for, which program, etc.
Select Homeowner’s Insurance
During the mortgage process, do research and choose a homeowner’s insurance company and program. Obtain homeowner’s insurance as soon as possible after going under contract.
Your Mortgage Advisor may have a few companies that they can recommend if you do not have a favorite.
Notify Your Mortgage Advisor of Special Circumstances
Do notify your Advisor of any special circumstances with your closing (i.e. utilizing a Power of Attorney, sending closing documents to you at a location other than the title company, going to be on vacation during the Mortgage process, etc).
Mortgage Do Not’s (to Get the Best Mortgage Rate)
Once you initiate the home loan process, there are certain actions that can help or hurt your chances of securing the best possible interest rate or terms on your mortgage.
Here is a detailed list of exactly what not to do while obtaining a mortgage to get the best mortgage rate.
No Major Purchases or Liabilities
Do Not make major purchases prior to closing, including a new car, furniture, appliances, electronics, etc.
Additionally, do not attempt to open or increase any liabilities, including credit cards, unsecured loans, etc. during the mortgage process as both of these circumstances may impact your ability to qualify.
Always speak with your Mortgage Advisor if, at any time, it becomes necessary to make any financial change that impacts your credit during your mortgage process, and please ask BEFORE you do it.
Do Not Change Jobs
Do not change jobs/employers without inquiring about the impact this change would have on the approval of your mortgage.
That event isn’t always going to be in your control, but many times you can delay changing jobs for the 30-45 days that it takes to close on your mortgage and avoid all of the potential issues this causes.
However, the change may or may not affect your mortgage process negatively, so please ask before you initiate the change.
Avoid Large Deposits
Do not obtain and/or deposit unusually large sums of money without proper documentation within 60 days of closing.
Federal guidelines require documentation as to the source of these funds (i.e. copy of bonus check, copy of insurance settlement, gift letter, etc.)
Also, DO NOT under ANY circumstances deposit CASH.
Yes, there are a lot of capital letters here! This is because you are unable to use cash deposits in your bank account as funds for Earnest Money, Down Payment and Closing Costs.
Keep that cash stash under your bed and let your Mortgage Advisor advise you on how to move forward.
Avoid Asset Account Changes
Do not close, open, or transfer any asset accounts without acquiring the proper documentation required for your mortgage file.
For example, if you transfer all the funds in your stock account to your savings account, then documentation is required. In most cases we need bank statements for both accounts and proof of the transfers.
Please reach out to your Mortgage Advisor on whether or not the transfer is necessary and if so, what exactly you’ll need for documentation.
No New Credit
Do not apply for new credit.
Every time your credit is pulled by a potential creditor or lender, you can lose points from your credit score, this includes co-signing for a loan. This is especially important if your credit is on the verge of qualification.
In addition, there are credit score milestones that provide you with a better interest rate.
Don’t Max Out Credit Cards
Do not max out your credit cards.
Try to keep your credit card balances at, or below, 30% of their maximum limit during the mortgage process.
A second “soft credit pull” is always done days before closing, and if you’ve charged on your cards causing your monthly payment to increase, that can have the potential to increase your debt-to-income ratio and may cause qualification issues.
Don’t Close Credit Cards
Do not close credit card accounts during the mortgage process.
Closing a card will affect other factors in the score, including history.
Don’t Pay Off Collections
Do not pay off collections or “Charge-Offs”.
If you want to pay off old accounts, we’ll have them paid at your mortgage closing and the Escrow Officer will send the payments and provide the documentation required.
Trust us, the documentation process is a hefty one when you pay off an account during the Mortgage process instead of at closing.
Don’t Consolidate Debt
Do not consolidate your debt.
When you consolidate all of your debt onto one or two credit cards, it will appear that you are “maxed out” on that card and your credit score may be penalized.
If you are in the middle of consolidating debt when beginning the mortgage process, please let your Mortgage Advisor know so we can plan for this.
This includes consolidating or refinancing student loans.
You’re Now Ready to Move Forward
You are now armed and ready to move forward with your mortgage and impress your Mortgage Advisor with how much you know — what a dream process it will be!
Now, just sit back and wait to hear those magical words… ”Cleared to Close”!
If you want or need more information, comment below or reach out to us any time, we are here to help!
