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It is very tempting to start thinking about decorating your new home the moment you initiate the mortgage process. But as a Lender, there are certain things I caution my clients against to ensure their California mortgage gets approved smoothly.
When you fill out a credit application, they run a credit report for the underwriter. Each lender and each loan program has different guidelines they must follow. You should not do anything that will have an adverse effect on your credit score while your loan is in process. We know it’s tempting. If you’re moving into a new home, you might be thinking about purchasing new appliances or furniture, but this is really not the right time to go shopping with your credit cards. You’ll want to remain in a stable position until the loan closes and give us the opportunity to help you lock in the best interest rate we can possibly get for you.
Here is a handy list of dos and don’ts that you should adhere to after your loan application has been submitted to the lender.
Don’t Apply For New Credit Of Any Kind – If you receive invitations to apply for new lines of credit, don’t respond. If you do, that company will pull your credit report and this will have an adverse effect on your credit score. Likewise, don’t establish new lines of credit for furniture, appliances, computers, etc.
Don’t Pay Off Collections Or Charge-Offs – Once your California mortgage loan application has been submitted, don’t pay off collections unless the lender specifically asks you to in order to secure the loan. Generally, paying off old collections causes a drop in the credit score. The lender is only looking at last two years of activity.
Don’t Close Credit Card Accounts – If you close a credit card account, it can affect your ratio of debt to available credit which has a 30% impact on your credit score. If you really want to close an account, do it after you close your mortgage loan. Click to get a quick California Mortgage rate quote.
Don’t Max Out Or Over Charge Existing Credit Cards – Running up your credit cards is the fastest way to bring your score down, and it could drop up to 100 points overnight. Once you are engaged in the loan process, try to keep your credit cards below 30% of the available credit limit.
Don’t Consolidate Debt To One Or Two Cards – Once again, we don’t want you to change your ratio of debt to available credit. Likewise, you want to keep beneficial credit history on the books.
Don’t Raise Red Flags To The Underwriter – Don’t co-sign on another person’s loan, or change your name and address. The less activity that occurs while your loan is in process, the better it is for you.
Do Join A Credit Watch Program – Your bank, credit union or credit card company may be able to provide you with a free credit watch program that can alert you to any changes in your credit report. This can be a safeguard to help you intervene before the underwriter sees a problem. I offer a FREE quarterly credit review program for my preferred clients. If you would like to know more about how you could avail of this benefit, email me at [email protected]
Do Stay Current On Existing Accounts – Late payments on your existing mortgage, car payment, or anything else that can be reported to a CRA can cost you dearly. One 30-day late payment can cost anywhere from 30 to 75 points on your credit score.
Do Continue To Use Your Credit As You Normally Would – Red flags are easily raised within the scoring system. If it appears you are diverting from your normal spending patterns, it could cause your score to go down. For example, if you’ve had a monthly service for Internet access billed to the same credit card for the past three years, there is really no reason to drop it now. Again, make your changes after the loan funds.
Do Call Your Loan Consultant – If you receive notification from a collection agency or creditor that could potentially have an adverse effect on your credit score, call your loan consultant so that he can try to direct you to the right resources and prevent any derogatory reporting to credit bureaus.
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