5. Pre-Approval Preservation
Once you’ve received a Pre-Approval from your lender, it is vitally important that nothing changes in terms of your income, assets or credit that would cause a change in your approval status.
Too many times do I see a homebuyer that moved money from one bank account to another, or took money from a friend or relative, or deposited cash into your bank account.
Some things can’t be helped, like a forced change in employment, or a planned advancement in employment (if you tell your loan officer first).
Other things can be helped, and knowing these commandments should preserve your loan approval, so that there are no surprises after getting your offer accepted.
Pre-Approval Preservation Best Practices
Best Practices for Pre-Approval Preservation. These commandments come into play starting the day after you are pre-approved for a home loan.
- Thou shalt not change jobs, become self-employed or quit your job. If you are aware of a significant change in your employment status, disclose this as early as you can to your loan officer. Employment changes can completely invalidate a pre-approval.
- Thou shalt not buy a car, truck or van. This commandments actually applies to any purchases of anything other than the absolute bare necessities. Do not purchase new furniture in anticipation of the move, or buy expensive shoes, or book that next vacation Avoid unnecessary, or unusual purchases, even if there is the biggest sale of the year!
- Thou shalt not charge up your credit cards or make late payments. Depending on the competitiveness of your local real estate market, if enough time passes between your first application, and when you get an offer accepted, you may have to have your credit updated by the lender. Besides late payments, increased balances on credit cards is the 2nd most common reason why credit scores drop.
- Thou shalt not spend money you have set aside for closing. Even if you are using downpayment, or closing cost assistance, and even if you are getting a closing cost credit form the seller, do not spend the money that was in your bank account from the date you applied for the loan. Unusual, or inconsistent balances in your bank accounts will create challenges, and questions that will need to be answered.
- Thou shalt not omit debts or liabilities from your loan application. If you have a note, or payment arrangement like alimony, child support, or a secured loan against your 401k, it’s important that you disclose everything up front, before you have your earnest money deposit tied up in escrow. That is not the time to deal with questions about liabilities.
- Thou shalt not buy furniture. This ties into commandment number 2, no charging up credit cards, which also covers applying for credit from the furniture store. There will be plenty of time to purchase furniture after you’ve closed escrow. One wrong purchase and your may no longer be qualified for the loan you need for the homes you are looking at.
- Thou shalt not allow anyone other than your Lender to run your credit. Unless approved by your loan officer, do not apply for credit cards, to take out loans, or at furniture stores, or Home Depot in anticipation of moving into the new home. The wrong type of credit inquiry could cause you to lose several vital points that could make, or break your loan pre-approval.
- Thou shalt not receive Gift Funds or make large deposits without first checking with your loan officer. Are you seeing a pattern here? Large deposits into your bank accounts mean lots of paperwork, and paper trails that need to be documented. There is almost always an easy way, and a hard way to receive large deposits or gift funds. Please consult your loan officer if you believe you will receive a large sum of money.
- Thou shalt not change bank accounts. Not changing the status of your sourced and seasoned assets are an important part of pre-approval preservation. The lender will require verification of balances for the previous 2 months. If your account is less than 2 months old, you have a timeline that will dictate the closing date on your accepted offer. Best practice is to not change bank accounts, and also do not make offers for the first 2 months if you do.
- Thou shalt not co-sign a loan for anyone. Co-signing on a loan makes you responsible for the payment of that liability. You share responsibility for repayment with the other signer on the loan.
What to do if Something Changes
If any of these commandments are broken, either intentionally or unintentionally, your previous Pre-Approval may no longer be valid.
It is not unusual for the Lender to re-run and update your credit report before the final step of the Home Buying Process.
If there are any changes, like maxed out credit cards, late payments, or new credit, you may lose your Mortgage Approval and possibly even any good faith deposit or inspection fees you’ve spent during the process.
In the rare event that there are changes in your financial, employment or credit profile happen after your initial Pre-Approval, contact your Lender immediately and inform them of the change. Your Lender will make the changes and update your Pre-Approval.
Always disclose changes, positive or negative, to your Loan Officer and ask questions if you are unsure about whether or not something will affect your Pre-Approval.