My Active Rain friend, Alan May, posted this useful checklist. I've probably told all my buyers this, but just in case, here it is again. People just can't understand why it's not a good idea to close some credit card, for example. Trust your lender and your agent to help you stay out of trouble!
I commented on his post about my client who had to switch loan programs because she got a raise that put them over the income limit for a special program. That was really ironic, but we found out too late to do anything about it.
At one of my myriad of workshops that I attend, a lender presented us with a top-ten list of things NOT to do, once you're under contract and anxiously awaiting your loan commitment, and eventually your closing. Many buyers, not merely first-time buyers, are not aware of these tips. I didn't love all ten, but I thought seven of them bore repeating.
Why is it important? Well, in today's interesting financial times, lenders are pulling your credit more than once during the loan process. In fact most times, at least in our region, they're pulling a last credit-check the day of, or the day before closing. That's right... one last time before cosing. If anything significant has changed, from the time you applied for you loan... and were preapproved, and now... it could totally mess things up.
Best-case scenario, you might no longer qualify for the rate you have locked-in.... or perhaps it might cause a delay requiring you to go back into underwriting. Worst-case scenario... you might have 'screwed the pooch', and no longer qualify for the loan at all.
So... here we go.
1) DON'T APPLY FOR ANY NEW CREDIT. Yes, I know, it's tempting... money is tight, you've just given the seller 10% earnest money, and are seriously cash poor. You've received a "pre-approved credit card" at one of the local department stores. Even though it says pre-approved, if you accept, they will pull your credit, and it could cause a drop in your score.
2) DON'T PAY OFF ANY OUTSTANDING DEBTS, while you're waiting to close. Especially past-due collections. I know it sounds counter-intuitive, but it could cause those outstanding debts to suddenly come to the forefront (the last date of activity), and cause you serious problems. If your lender insists that they need to be paid off... see if they'll let you pay it off AT the closing.
3) DON'T CLOSE ANY OPEN CREDIT CARDS. Again, this is counter-intuitive. It may cause your debt ratio to rise, and if this is a card that you've had for 10 years, and was paid in a timely fashion, you're removing that "good" history from your credit report.
4) DON'T MAX OUT or OVER CHARGE any credit cards. This should be a no-brainer. (ie: if you do it, you're just not using your brain!). in fact, you know what... take your cards out of your purse/wallet, and leave them at home.
5) DON'T CONSOLIDATE ANY CREDIT CARDS. You know the offers that say... "transfer your balance onto our card for 0% financing for a year". While it looks like a smart idea on the surface, it could wreak havoc with your ratios. Don't do it.
6) DON'T MAKE ANY MAJOR PURCHASES that might cause your score to change. Don't buy a new car, even if you pay cash. That might deplete some of your funds on hand that your lender is counting on. Certainly don't buy a car with a new 5-year loan. That'll totally screw up your ratios for the lender. Depending on how tight your approval is, this might include buying furniture, timeshares, expensive vacations, window-treatments for the new house. Be very frugal with your purchasing, during this period. Once you've actually closed on the property and taken possession, you can go buy all that furniture on credit.
7) DON'T CHANGE YOUR PAYMENT HABITS. Continue to pay your existing accounts on time... in fact pay them a few days early... just in case. If they're paid early, that can only help you credit. But odd as it seems, don't suddenly pay one off... or pay half of the balance. If you've been paying $100/monthly, continue to do so. Changes in paying habits 'could' become a red flag.
8) DON'T CHANGE anything ABOUT YOUR JOB. Don't take a different position, transfer even within the company... before you accept any position like that, talk to your loan officer!! Thanks, Jerry Newman (comment #8) for this extra one!
Let's be careful out there, shall we?
ALAN MAY, Realtor®
Specializing in Evanston Real Estate and North Shore Real Estate
Coldwell Banker Residential Real Estate, 2929 Central Street, Evanston, IL 60201
847.425.3779 Cell: 847.924.3313 Email: Almay@aol.com
Evanston Real Estate & North Shore Real Estate • Licensed in Illinois
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