The Mistakes That Are Completely Avoidable and Happen Constantly Anyway

Picture this. You are thirty days away from closing on a home you have been working toward for months. And then you make one of these mistakes. Now your loan is dead.

Judy Miller at Canopy Mortgage has seen every single one of the following examples happen in real life. Borrowers who did not realize how consequential a financial decision made between application and closing could be. The good news is that every one of these situations is completely preventable if you know what to avoid and why.

Mistake One: Buying a New Car

A new car comes with a new monthly payment. That new payment is factored into your debt-to-income ratio. If the addition of that payment pushes your DTI above the threshold the lender requires you no longer qualify for the loan. Thirty days from closing you are now scrambling to pay off something else to bring the ratio back down and you may not have the funds to do it.

Mistake Two: Opening a New Credit Card

Every new credit account you open temporarily drops your credit score. A score that was comfortably above the minimum qualifying threshold before the new account was opened may fall below it afterward. New accounts also add potential monthly obligations that affect your DTI calculation even if you have not charged anything on the card yet. If the combined effect pushes either your score or your DTI out of range you may need to pay off existing debt to qualify and that cash may not be available.

Mistake Three: Quitting Your Job to Start a Business

Lenders need a two-year history of stable income to qualify a borrower through conventional guidelines. A business that was started last week has no income history to document. The moment you leave employment to become self-employed the income verification process changes entirely and the documentation required to qualify under self-employment guidelines does not yet exist. The loan that was approved based on your W-2 income can no longer close on those terms.

Mistake Four: Making a Large Cash Deposit You Cannot Explain

Underwriters review bank statements as part of the loan process and they need to know where every dollar came from. A large cash deposit that appears on a statement without documentation of its source creates a problem that cannot be resolved by simply saying it was a gift or money you had set aside. Every dollar used for the down payment must be documented and sourced. If you cannot document the deposit and you do not have enough of your own verified funds to cover the closing you cannot close.

Mistake Five: Cosigning for Someone Else

When you cosign on another person's loan their debt becomes your debt in the lender's evaluation of your DTI. The new car they bought that you cosigned for adds their monthly payment to your debt obligations. If that addition pushes your DTI over the qualifying limit your loan is in jeopardy even though you never intended to take on any new debt personally.

The Rule That Prevents All of It

As Judy Miller explains the borrowers who run into these situations are almost never acting carelessly. They simply do not realize how significant the impact of what feels like a normal financial decision can be on a loan that is thirty days from closing. The underwriting guidelines that were satisfied at application need to be satisfied at closing and anything that changes the income, debt, credit, or asset picture between those two points can create a problem.

The rule of thumb is straightforward. Do not make any major financial moves without talking to your lender first. Not after the fact. Before. That single habit prevents every one of the five scenarios above from ever becoming a problem.

And when you start the process be upfront about your full financial situation from the beginning. Not a few days before closing. At the start. The loan officer who knows your complete picture from day one can guide you through the process in a way that accounts for your specific circumstances rather than discovering a complication at the worst possible moment.

Share this with someone who is getting ready to buy or is already in the process right now. You could literally save their deal.

Judy Miller is Branch Owner at Canopy Mortgage. Comment below or reach out directly and she will help you stay out of the danger zone from application through closing.

Sources

ConsumerFinancialProtectionBureau.gov
FannieMae.com
MortgageNewsDaily.com
Investopedia.com
MyFICO.com