Finding the right home is exciting. Discovering late in the process that a financial decision has affected your mortgage can be frustrating, expensive and potentially damaging to the purchase.
A preapproval is an important starting point, but it is not a guaranteed loan. Your lender may still need to verify your income, assets, debts, credit, employment and property information before issuing final approval.
Here are nine common mistakes Charlotte homebuyers should avoid before closing.
1. Do Not Treat Your Preapproval as Your Budget
A lender may preapprove you for more than you are comfortable spending each month. According to the Consumer Financial Protection Bureau, a preapproval is a tentative statement of what a lender may be willing to lend, not a guaranteed loan offer.
Your personal budget should account for more than principal and interest. Consider:
- Property taxes and homeowners insurance
- Mortgage insurance, when applicable
- Homeowners association dues
- Utilities and routine maintenance
- Repairs and future replacements
- Moving, furnishing and setup expenses
- Emergency savings and other financial goals
Choose a payment that leaves room for ordinary expenses and unexpected costs instead of automatically shopping at the maximum amount shown on your preapproval.
2. Do Not Apply for New Credit
A new credit card, personal loan or financing account can result in a credit inquiry and additional debt. Either change could affect the terms or amount of your mortgage qualification.
Avoid applying for new credit while preparing to buy and throughout the period between your mortgage application and closing. If opening an account is unavoidable, speak with your loan officer first.
3. Do Not Finance a Car, Furniture or Appliances
New furniture may be tempting once you find a home, but financing it before closing creates new debt. The same applies to purchasing or leasing a vehicle.
Even if you can afford the new payment, it may change the financial information used during underwriting. Wait until the purchase is complete and the transaction has officially closed before taking on additional financing unless your lender advises otherwise.
4. Do Not Make Large Financial Transfers Without a Plan
A legitimate deposit or transfer does not automatically prevent mortgage approval. However, your lender may need documentation showing where the money originated and whether it represents borrowed funds.
Before moving significant funds, depositing cash or receiving money from another person, ask your lender what records will be required. Keep bank statements, transfer confirmations, gift documentation and other supporting records.
Avoid moving down-payment or closing funds among multiple accounts merely to reorganize your finances. Unnecessary transfers can create additional documentation requests and slow the review.
5. Do Not Co-Sign a New Loan
Co-signing means accepting legal responsibility for another person’s debt. That obligation may be considered during mortgage underwriting even when the other borrower intends to make every payment.
If someone asks you to co-sign for a vehicle, apartment, student loan or other debt, wait until after your home purchase. If you have already co-signed, disclose it to your lender and provide any requested documentation.
6. Do Not Change Jobs Without Speaking With Your Lender
Changing jobs does not automatically disqualify you from obtaining a mortgage. However, lenders commonly verify employment and income, and a change in employer, compensation structure, hours or employment status may require additional review.
Contact your loan officer before:
- Leaving your current position
- Starting a new job
- Switching from salaried to commission-based income
- Becoming self-employed or an independent contractor
- Reducing your working hours
- Taking unpaid leave
If an unexpected employment change occurs, tell the lender immediately. Early communication gives the mortgage team more time to explain how the change may affect the application.
7. Do Not Miss Payments or Increase Credit Balances
Continue paying every account on time while your loan is being reviewed. A missed payment or significantly higher credit-card balance could affect your credit or monthly debt obligations.
Keep normal payment records and avoid using credit cards to cover large moving, travel or furnishing expenses before closing. Do not close existing credit accounts solely because they have a zero balance without first discussing the possible effect with a qualified financial or lending professional.
8. Do Not Waive Important Protections Without Understanding the Risk
Competitive conditions sometimes lead buyers to consider shorter deadlines or fewer contract protections. These choices can have significant financial consequences.
A professional home inspection may identify concerns involving the roof, foundation, electrical system, plumbing, HVAC equipment, moisture or other components. The Consumer Financial Protection Bureau recommends arranging an independent inspection promptly after the offer is accepted.
Before changing inspection, appraisal, financing or due diligence terms, discuss the possible consequences with your real estate agent and the appropriate legal, lending or inspection professionals.
9. Do Not Let Emotion Override Your Plan
It is natural to become excited about a property, but that excitement should not override your budget, required features or tolerance for repairs.
Before touring homes, define:
- Your comfortable monthly payment
- Your maximum cash needed at closing
- Your essential property requirements
- Your preferred locations and commute limits
- The repairs or improvements you are willing to accept
Review those priorities before submitting an offer. If inspection findings, appraisal results or contract terms change the financial picture, reconsider the property based on the new information.
Questions and negotiations with the seller should generally be coordinated through the real estate professionals involved in the transaction. This keeps important communication documented and focused on the property and contract terms.
What to Do If Something Changes Before Closing
Unexpected events happen. A buyer may receive a work bonus, change jobs, replace a vehicle or need to transfer money for an emergency. The most important step is to communicate with the lender before acting whenever possible.
Do not attempt to hide a financial change. Explain what happened, provide the requested documents and allow the lender to determine whether the application needs to be updated.
Frequently Asked Questions
Is a mortgage preapproval a guaranteed loan?
No. A preapproval is based on preliminary information and assumptions. Final approval may depend on updated verification, underwriting, the appraisal, property eligibility, insurance and other requirements.
Can I use my credit card before closing?
Routine use may not necessarily cause a problem, but large purchases or higher balances could affect your credit and debt obligations. Ask your lender before making a substantial charge.
Can I change jobs while buying a home?
Possibly, but the lender will need to evaluate the change. A new employer, compensation method, employment gap or reduced hours could require additional documentation or affect qualification.
Can I deposit gift money for my down payment?
Some mortgage programs permit eligible gift funds, but documentation and source requirements apply. Ask your lender how the funds should be transferred and documented before depositing them.
What should I do if my financial situation changes?
Contact your loan officer promptly. The effect depends on the type of change, loan program and stage of underwriting. Early disclosure provides more time to address documentation or qualification questions.
More Charlotte Homebuyer Resources
Preparing to buy a home in Charlotte? These Stone Realty Group resources can help you plan your financing, budget and home search:
Planning to Buy a Home in Charlotte?
Stone Realty Group can help you organize your home search, evaluate properties, prepare an offer and coordinate the steps between contract and closing. Mortgage approval and lending advice should come directly from a licensed mortgage professional.
Connect with Stone Realty Group to begin planning your Charlotte-area home purchase.