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Mortgage Preapproval Mistakes to Avoid

Published: January 09, 2019

Congratulations, you made the decision to purchase a house! Whether it's your first house, second house, or tenth house, you're going to go through the same process of pre-approval before you begin the home buying process. Once you've been pre-approved for a mortgage loan, it's important to follow some guidelines in order to avoid making any mistakes and voiding your pre-approval from your lender. Here are some tips on mistakes to avoid after you've been pre-approved for a mortgage loan.

Opening New Credit Accounts

Once you've been pre-approved for a loan, it's best to avoid taking out any additional credit accounts until after the closing. The reason being is that the more accounts you apply for/talk out, the more likely your score will decrease. If your score decreases drastically, then you will disqualify yourself from the pre-approval loan and/or the rate that you locked in.

Making Large Purchases

There are three large purchases to use credit for: cars, houses, and furniture. Even if you're using all of these purchases for the new house, you should wait until after you close. The reason being your debt-to-income ratio (DTI). Lenders calculate your DTI based on what loans you currently have and what your income is. If it's above a certain percentage, than you're less likely to be approved for a loan. If you increase your DTI after you've been pre-approved, you could lose your pre-approval and have to start over, no matter what point in the process you're in.

Paying Off Debt

If you have enough cash to pay off all of your current debt, you should wait until after you close on your house. This is because you pre-approval is based on your credit score, which is calculated by looking at all of your debts and payment history. If you pay off all of your debt, it will change the dynamic of your credit score and could result in you losing your funding.

Missing Payments 

Even though you're going to be switching utility companies when you move, it's important to make sure that you're paying all of your bills on time. Many utility companies will alert the credit bureaus if you start missing payments, which can negatively impact your score. By lowering your score, you're more likely to become a risk to the lender, which could result in you losing your pre-approval or being denied for a loan.

Changing Jobs

This is a huge mistake. Your loan application requires W2s for your company, but your lender will also look at how long you've been there and what your salary is as part of the application. They use it to determine the stability of your income. If you switch jobs while you're buying a house, you become more of a risk for layoffs, salary changes, etc. It can impact your DTI ratio as well. This could mean that you are no longer pre-approved for a certain amount, or denied all-together.

Even though you've been pre-approved for a mortgage, it doesn't necessarily mean that you're locked into a loan. There are many factors that can change with your situation that could end up with a denial. Before you start making any big decisions that could impact the home buying process, make sure you close on your house first. Or, do all of these things BEFORE you apply for a pre-approval.