When buying a home, there are two stages in the home loan approval process.
Stage 1 starts when a homebuyer submits a mortgage application to his loan officer for a pre-approval.
A pre-approval is a “walk-through” mortgage approval that says — at a given purchase price and downpayment amount — the home loan application will very likely be approved.
Stage 1 ends when the buyer signs a purchase contract on a home. At this point, the “walk-through” approval is useless because the buyer now needs a real home loan approval from an underwriter and not a loan officer.
Thus begins Stage 2.
During the second phase of the approval process, a mortgage underwriter is reviewing income, assets, credit, job history, and other items, too; the underwriters job is to make sure that the buyer meets the bank’s criteria for lending.
If the loan officer did his job in Stage 1, Stage 2 is just a formality. And most times, it all goes according to plan.
Occasionally, though, a homebuyer sabotages his own mortgage approval by inadvertently changing his “risk profile”. It doesn’t happen on purpose, of course — it just happens.
So, consider this a quick primer of what not to do while you’re between Stage 1 and the completion of Stage 2 of the home loan approval process. Following these pointers will help keep the risk profile consistent.
- Don’t buy a new car (or take on a larger lease payment)
- Don’t quit your job or change industries (and certainly don’t switch to a heavily commissioned role)
- Don’t transfer large sums of money into or out from your bank accounts (and remember that “large” is relative)
- Don’t miss a payment to a creditor (even if you don’t think you owe it)
- Don’t open a new credit card (even if you’re getting 10% off your new bedding)
- Don’t accept a cash gift without talking to your loan officer first (because there’s rules on how to accept them)
There’s other items, too, but this a good start.
Now, avoiding these mistakes may not be practical for everyone. Therefore, if you know you’re going to violate a “rule”, check with your loan officer first.
There are a lot of “gotchas” in mortgage lending and it helps to have professional guidance for your individual questions.