Credit Do's and Don'ts to Keep in Mind
How can a fully approved loan get denied for funding after the borrower has signed loan docs?
We use a debt monitoring service that notifies us when you have applied for credit after the time of your initial loan application. We monitor this up until the day of closing. We do this because we need to know if you have added a new payment for a new car or any new debt/payments. The reason this is important is because we have to qualify you based on your total monthly debt, including new debt acquired before closing.
Top Credit Do's and Don'ts:
1. DO continue making your mortgage or rent payments -
Remember, you're trying to buy or refinance your home - one of the first things a lender looks for is a responsible payment history on your current housing situation. Even if you plan on closing in the middle of the month, or if you've already given notice, continue paying your rent until you've closed your loan with us. It's always better to be safe than sorry.
2. DO stay current on all accounts -
The same goes for your other types of accounts (student loans, credit cards, etc.) Nothing can derail a mortgage loan faster than a late payment coming in the middle of the loan process.
3. DON'T make a major purchase (car, boat, big screen TV, etc.) -
This one gets borrowers in trouble more than any other item. Wait until the loan is closed before buying that new car, boat, furniture or TV.
4. DON'T close any credit card accounts -
Closing an account can have a negative impact on your score. The reason for this is that it can decrease your credit capacity and may be a demonstration that you are having trouble managing your credit/payments.
5. DON'T open a new cell phone account -
Cell phone companies pull your credit when you open a new account. If you're on the border credit wise, that inquiry can drop your score enough to impact your credit score.
6. DON'T consolidate your debt onto 1 or 2 cards -
We've already established that additional credit inquiries will hurt your score, but consolidating your credit will also diminish your credit capacity (the amount of credit you have available), resulting in another hit to your credit score.
7. DON'T payoff collections -
Sometimes a lender will require you to pay off a collection prior to closing your loan; other times they will not. The best rule of thumb is to only payoff collections if necessary to ensure a loan approval. Otherwise, needlessly paying off collections could have a negative impact on your score. Consult your loan officer prior to paying off any accounts.
8. DON'T take out a new loan -
This goes for car loans, student loans, additional credit cards, lines of credit and any other type of loan. Taking out a new loan can have a negative impact on your credit and may affect your ability to qualify.
Follow these Do's and Don'ts for a smoother mortgage approval and mortgage closing.
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