Buying a home can be a complex process with a lot of moving parts and things to keep track of. One thing that tends to get forgotten is your credit. After your loan officer pulls your credit for pre-qualification, you may think you’re all set. You use your credit cards to buy everything you’re going to need for your new house, maybe even get a new one at the home improvement store to stock up on essentials. Maybe you celebrate your stellar credit with a new car, too! Then suddenly, just before your closing date, your loan officer calls you to find out what happened to your credit and now you don’t qualify! Your credit card range will fluctuate with activity and it’s important to understand what credit is and how it works.
It may sound scary but it does happen. What we want to be sure of is to set expectations appropriately. In the mortgage process, your credit is pulled during pre-qualification and refreshed right before closing. This check is to ensure your debt situation still allows you to qualify for your mortgage. All too often this is overlooked and debt balances increase dramatically, or a new debt is added that pushes the debt-to-income ratio too high. It can be a scary situation to find out just before closing you may not qualify!
So how is this scenario prevented? We recommend a few different things to do or avoid doing:
No new debt – Whatever credit lines appear on your credit report at the beginning should be the same (if not less) at closing. It is suggested to not acquire any new credit cards, purchase a car, etc. until after closing.
Do not increase balances – An increase in balance can equal an increase in payment amount for some cards. Try to avoid racking up balances that cause the increase payment and increased debt-to-income ratio. Use cash or debit cards to purchase products for your new home until after the process.
Avoid new credit inquiries – New credit inquiries will also appear on the “refresh” before closing. This will open a whole new set of questions as any new debt won’t likely appear, just the inquiry. This will make things difficult if there is new debt since we will then have to verify, which will require a lot of work in a short period of time for you. It’s best to avoid any new inquiries at all.
The mortgage process can be complex at times, and following these tips can help prevent unnecessary stress during the process. We want to ensure a quick, easy process and following these tips will help both yourself and your lender. If you have any questions please contact one of our loan officers here at Title Mortgage Solution!