Your actions before or after receiving lender approval for a mortgage loan can disqualify you for the loan.

Here are some major mistakes to avoid.

FICO score:
Don’t do anything to lower your FICO score prior to or during the loan process.  Don’t take out any new loans, open a new credit card,  pay off any large debts, or run up large charges on your credit cards.

(See our discussion on this topic in another tab.)

Debt-to-Income Ratio

Your debt-to-income ratio is your gross monthly income divided by the amount you spend on debt. Debt items include mortgage payments (including principal, interest, insurance, tax), car payments, credit card payments, student loans, child support payments, etc.  The lender considers debt-to-income ratio when approving you for a mortgage loan. Only 28 percent of your income can be used for your mortgage payments, which includes taxes and insurance; and absolutely no more than 45% percent (many times less) for the mortgage payment plus the rest of your debt. Anything you do to negatively affect your debt-to-income ratio may change an “approval” to a “disqualification.”

Avoid Red Flags

A red flag is any inquiry made regarding your credit worthiness. If you decide to purchase a big ticket item – like a car, boat or furniture – prior to closing, you’re at risk of having a red flag show up on your credit report.

Keep Your Money Where It Is

The balances of your liquid assets are considered when approving you for a mortgage loan. These liquid assets may include checking accounts, savings accounts, certificates of deposit, money market accounts, retirement accounts, stock and mutual funds.

Avoid changes to the balances of these accounts. Do not close accounts. Do not change banks. A large withdrawal or deposit to any of these accounts will trigger a red flag for your mortgage lender. If a red flag is triggered, you may be asked to produce a paper trail tracking large withdrawals and/or deposits.

Employment Status

For most employees a change of jobs to one of equal or higher pay will not trigger a red flag.  Lenders do like to see 6 months of employment with the same company. However, sales people should not change jobs prior to closing on their mortgage loan.  For people new to the workforce, most lenders require two years of steady employment with the same employer.

If your income is strictly salary than you should not have a problem changing to another job of equal or greater income. If, however, your income includes salary and bonuses, commissions and/or overtime, you should not change jobs prior to closing.

If your income is based solely on a 40-hour work week without overtime, than changing to a job with equal or greater hourly pay should not be a problem. However, if your income is dependent upon overtime pay, do not change jobs prior to closing.

If your income is from commission or a substantial portion of your income is from commission, then you should not change jobs. Typically, mortgage lenders average your commissions over the last two year period to determine income. Changing employers eliminates the two-year commission history and places uncertainty on your income status.

Talk to Your Loan Originator

Do not make any changes to your financial and employment status without first talking to your loan originator.