Last-Minute Credit Check
It’s very important to understand that Your actions after receiving a lender’s mortgage loan approval can disqualify you for the loan at the last minute!
A mortgage loan is conditionally approved – meaning that the lender reserves the right to re-verify your credit, income, assets and employment at any time. The lender may cancel your loan if there are any adverse changes to your qualification status between the time you applied and the closing.
Debt-to-Income Ratio
The lender considers debt-to-income ratio when approving you for a mortgage loan.
When you first applied for your mortgage loan, your lender calculated your Housing Debt ratio (AKA: front ratio) such as: principal, interest, insurance, taxes and HOA fee (if applicable). Your lender also calculated your Total Debt ratio (AKA: back ratio) which also includes all your other monthly recurring miscellaneous expenses, such as: car payments, credit card payments, student loans, child support payments, etc.
Anything you do to negatively between the time you applied for your loan and your closing date can affect your debt-to-income ratio and the lender may change an "approval" to a "disqualification" (Denial of your loan).
Avoid RED Flags
A red flag is any credit inquiry made regarding your credit worthiness while your loan is in process. If you decide to purchase a big-ticket item such as a car, boat or furniture prior to closing, you're at risk of having a red flag show up on your credit report.
Keep your money where it is
The balances of your liquid assets are considered when approving you for a mortgage loan. These liquid assets may include checking accounts, savings accounts, certificates of deposit, money market accounts, retirement accounts, stock and mutual funds, etc.
Avoid changes to the balances of these accounts. Do not close any accounts. Do not change banks. A large withdrawal or deposit into or out of any of these accounts will trigger a red flag for your mortgage lender. If a red flag is triggered, you may be asked to produce a paper trail tracking any large withdrawals and/or deposits.
Employment Status
For most employees, a change of jobs to one of equal or higher pay will not trigger a red flag. However, salespeople should not change jobs prior to closing on their mortgage loan.
Salaried Employees: If your income is strictly salary than you should not have a problem changing to another job of equal or greater income. If, however, your income includes salary and bonuses, commissions and/or overtime, you should not change jobs prior to closing.
Hourly Employees: If your income is based solely on a 40-hour work week without overtime, then changing to a job with equal or greater hourly pay should not be a problem. However, if your income is dependent upon overtime pay, it’s extremely important to not change jobs prior to closing.
Commissioned Employees: If your income is from commission or a substantial portion of your income is from commission, then you should not change jobs prior to closing. Typically, mortgage lenders average your commissions over the last two-year period in order to determine an average monthly income. Therefore, changing employers in the middle of your transaction eliminates the two-year commission history and places uncertainty on your income status.
