Money Moves that Can Affect Your Mortgage: Avoid at All Costs!
Sometimes, we easily let our guard down while waiting for closing. This is especially the case after going through the tedious process of getting pre-approved, finding that dream home, and having your offer accepted! But there is no reason to be lax about the closing process until it's actually over. There are some money moves that you have to be careful with while waiting for closing, as they may affect your mortgage. Cain Realty Group lists them out for you here:
Adding to Your Credit Lines
Applying for a new credit card or requesting for a credit limit increase might not hurt you too much in the months before you close on a home, but be warned! Certain credit inquiries can lead lenders to reflect on your recent attempts to borrow additional funds, and regard these steps you've made as those of an unwise spender. Your credit score dips with any credit-related inquiries, so make sure to do these (applying for a new credit card, asking for a credit limit increase, even getting a car loan!) before or after a home purchase transaction.
The smartest way to do things is to prioritize seeing through the closing of your home purchase transaction FIRST before you file any credit-related applications.
Shopping 'til You Drop
The prospect of moving in to your very own home can truly make you feel the need to shop for new furniture, new appliances, even a shiny, new car in the driveaway to match all the new things you'll be having soon! But you have to play smart and resist the urge, just until you have your dream home in actual possession. Why?
Lenders often run credit reports within hours of the scheduled closing, and new large debt (mainly due to your new home decor, appliances, furniture, car, etc.) can change your debt ratios, interest rates, and you can even end up getting denied with your loan application. If you don't want all those amazing furniture (that perfectly match the new house, by the way!) end up in a rental home, resist the urge to shop until closing.
Moving Your Money Around
It's a BAD idea to move your savings out of their neat hiding place to have them invested in things such as stocks while you wait to close. Why? Although the reason behind this financial move sounds good (you want to earn some extra income through investments), letting go of your cash reserves will make you lose your liquidity (aka the ability to come up with cash when you need it). This will affect your loan approval as lenders will look at the amount of cash you have stored and ready before closing. Savings are valued at 100% of their value, while stocks are only valued at 70% because stock prices fluctuate.
Simply put, your cash reserves need to cover your down payment, closing costs, and a minimum of three months' worth of mortgage payments. If your investment in stocks depletes your savings too much, then a denial is likely.
Taking a Leave off of Work
Lenders are relying on your being willing and able to work after they approve your loan—after all, it’s the only way to prove you’ll make those monthly payments.
We know stuff happens, and sometimes you have to take a leave of absence. But don’t risk it unless it’s completely necessary—or unless you’re prepared for your mortgage to get delayed or denied.
“Once, two weeks before closing, the borrower went out on medical leave because her back hurt,” Fleming says. “We had to wait for two more paychecks to prove she was back at work.”
Changing Jobs-- Even for a Higher-Paying One
It might seem a smart idea to switch your current job with a higher-paying one as you wait for the closing of your home purchase transaction, but please, DONT. Lenders assess your financial capability of taking on a mortgage based on your current occupation and salary. And since you have a proven track record of being good at what you do, and your employers loving you for your skills, (in theory, you've been with your company for a certain period of time) they will prefer to give you mortgage rates based on your track record instead of risking lending to you as a new-hire (albeit with higher salary). It simply disrupts a tedious paperwork process that can end up with you getting denied by your lender.
Promotions within your company or lateral moves to another are deemed as positive career moves that can impact your closing positively, but switching to another job in a different field isn't, even if it pays higher. This is simply because you have proven yourself a capable worker with extended employment in the current position you have, but there is no certainty if you will last in your new job. So please, make your lenders feel confident that you can repay the loan. Stay stable, at least until closing, and when you have a buffer fund of at least 3 months' worth of mortgage payments ready, then it's time for you to consider any career opportunities that await in different industries.
If you would like to learn more about this topic, you can access the Realtor.com article from which this post was based.