1. Keep your finances SIMPLE for 2-3 months prior to applying
This seems obvious but might be more complicated than you think. When you first apply, the bank will look at you last 2-3 months of statements. Any large withdrawals, deposits, or “interesting” activity is cause for concern on their part – even if you just loaned a friend money, or went on an extravagant vacation. Any unusual spending patterns, no matter how explainable, can complicate the process. Other things, like applying for a new credit card or having your credit run, will affect your credit score for around 6 months.
2. Minimize your liabilities
Did you cosign a loan for a friend or relative? Are you still on your old lease a year after moving in with your significant other because it was easier to just let your roommates cousin move in unofficially and sublet your room? Did you apply for a new credit card and buy all your Christmas gifts on Amazon to get frequent flier miles for that awesome trip to Aruba in January, but plan to pay it all off next month? Is your name still on that joint credit account with your sister that your parents set up when you were in college, where she has now racked up to $6,000 of debt? These things may sound trivial, and are not expenses you actually expect to have to pay, but in the calculating eyes of an underwriter, any debts, notes, or accounts you have a legal obligation to, whether or not you are the one paying them in practice, will be considered a liability and can ultimately bring down the size of loan you can qualify for. This includes and leases, loans, credit cards, and any other accounts payable that your name is attached to.
3. Be BORING during underwriting
Keep your finances as boring and steady as possible between the time you apply for a mortgage and the time you close on the loan. That sounds simple in theory, but it's sometimes difficult in practice. However, the reason behind it is simple: when you apply for the mortgage, the lender looks at your credit report and your credit score. Then, shortly before closing, the lender will survey your credit again. If there's a substantial change of any kind, the lender might have to delay your mortgage closing. Which brings us to #4…
4. Don’t apply for a new credit card or loan
Mortgage lenders always caution mortgage applicants to avoid getting new credit cards or auto loans while home loans are in underwriting. Remember that your credit debt (liabilities), not just your credit score, are used to determine what monthly loan payments you are able to qualify for – the more debt you have, the higher your expected monthly expenses become. Assume that everything you do will be examined up until the minute of underwriting and spend/behave accordingly.
5. Don’t change jobs
Getting a new job, or a new position with a different pay structure at your same employer, may jeopardize your mortgage. This is especially the case where your income from salary is decreased, even if you ultimately expect a bigger pay day with commission or bonuses.
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