Congratulations, you’ve been pre-approved for a mortgage! At this point, you may be tempted to relax after all the hard work you’ve done pumping up your savings account and raising your credit score. But don’t go on a spending spree just yet.
Many buyers don’t realize that lenders will check your credit score again before you close on your home—and if your finances have changed since your pre-approval, they could deny your loan. That’s why it’s so important to keep being cautious with your money right up until the day you close.
Here are five tips to keep your credit in good standing between pre-approval and your closing day.
1.) Hold off on buying cars, boats, furniture, or other major purchases.
It’s tempting to reward yourself for reaching this point but do yourself a favor and wait a little longer. When your lender pre-approved you, they looked at your current debt-to-income ratio and cash reserves. If those change, your lender might decide that you no longer have enough money to buy your new home. It’s better to wait until after closing day and even a little after, so you can decide how much room you have in your budget after your mortgage payment, home insurance, utilities, and other expenses.
2.) Don’t try to borrow more money or open new credit cards right now.
That credit card offer you get in the mail or a store’s offer to save when you open a line of credit may look good in the moment. But because every line of credit factors into your debt-to-income ratio, you should avoid borrowing or financing anything else before your closing day.
Remember, this doesn’t just apply to credit cards. It also includes cell phone upgrades, cable TV, and any buy-now/pay-later purchases including furniture.
3.) Stick with your current bank.
Remember all the documents you had to collect from your current bank to get your pre-approval? That’s not a process you want to repeat, so save yourself the trouble (and a possible denial) by keeping your checking and savings accounts as-is.
Your bank balances act as proof that you have the funds you’ll need for your down payment and closing costs. Most lenders also want the money in your accounts to be “sourced and seasoned.” In other words, they want you to be able to show where the money came from, and they don’t want it to appear overnight—they want it to have been in your account for a certain amount of time. If you suddenly change banks, your money will no longer be seasoned, and you may have to start the process all over again. And that’s time-consuming.
4. Don’t make any big deposits or withdrawals from your bank account.
Depositing your regular paycheck is okay since the lender has already evaluated your income. However, any large ($200+) deposit from other sources could be called into question. If you happen to have a generous relative who wants to help you out with your down payment (lucky you!), talk to your loan officer about getting a gift letter so you can prove where the money came from.
At the same time, you still want to protect the cash reserves your lender saw when you were pre-approved, so avoid making large or unusual withdrawals right now. Remember, you’ll need to have enough in your account to cover your down payment and closing costs.
While it seems like paying off debt would be a smart move, what you owe was already considered when your lender figured your debt-to-income ratio. Making changes at this time could complicate the process, so it’s best to continue making minimum payments for now and wait to tackle the debt after closing day.
All of this may seem complicated, but your whole goal is to avoid making big changes until you get to that day you’ve been working so hard to reach: Closing Day!
Have you been pre-approved yet, or are you simply wondering if you’re ready to buy your own home? Our loan officers would be happy to answer questions, discuss the process, and help keep you on track to meet your goals.