How to Keep Your Mortgage Approval

Just because you have your mortgage approval letter does not mean you will be able to close on your home purchase. What happens after your mortgage approval may affect your eligibility.

As a you need to remember that a mortgage is conditionally approved, with the lender reserving the right to re-verify credit, income, assets and employment at anytime. The lender may cancel the loan if there are any adverse changes to your qualification status.

So what would affect your Mortgage Approval?

Debt-to-Income Ratio

Lenders consider debt-to-income ratio when approving you for a mortgage loan. Only 28 percent of your income can be used for your mortgage payment, which includes taxes and insurance; and 36 percent for the mortgage payment plus the rest of your debt. If you do not conform to those lending guidelines, you risk your mortgage approval.

Read Also: Calculate your debt-to-income ratio

What’s Your Debt-To-Income Ratio?

Don’t Purchase Big Ticket Items

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. This may change your debt-to-income ratio and affect your mortgage approval.

Don’t Move Money Around

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.

So to not affect your mortgage approval negatively:

• 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

That does not mean that you can’t do these things, but be prepared. So leave your money where it is until you talk to a lender. Why?

Because of the fraud in the mortgage industry, regulators are taking a harder look at financial activity around mortgages. So the mortgage underwriter will require a complete paper trail of all the withdrawals and deposits. You may be required to produce canceled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious. To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds.

Don’t Change Your Employment Status

For most employees a change of jobs to one of equal or higher pay should not trigger a red flag. However, sales people should not change jobs prior to closing on their mortgage loan. Here is a brief review of what not to do for certain types of employees:

Salaried Employees

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.

Hourly Employees

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.

Commissioned Employees

If your income is from commission or a substantial portion of your income is from commission, then you should not change jobs prior to closing. 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.

Part-Time Employees

If you earn an hourly income but rarely work forty hours a week, you should not change jobs. There would be no way to tell how many hours you will work each week on the new job, so no way to accurately calculate your income. If you remain on the old job, the lender can just average your earnings.

Self-Employment

If you are considering a change to self-employment before buying a new home, don’t do it. Buy the home first. Lenders like to see a two-year track record of self-employment income when approving a loan. Plus, self-employed individuals tend to include a lot of expenses on the Schedule C of their tax returns, especially in the early years of self-employment. While this minimizes your tax obligation to the IRS, it also minimizes your income to qualify for a home loan.

If you are considering changing your business from a sole proprietorship to a partnership or corporation, you should also delay that until you purchase your new home.

About Bonuses and Over-time Income

• If a substantial portion of your income on the new job will come from bonuses, you may want to consider delaying an employment change. Mortgage lenders will rarely consider future bonuses as income unless you have been on the same job for two years and have a track record of receiving those bonuses. Then they will average your bonuses over the last two years in calculating your income.

• Overtime income cannot be determined if you change jobs. If you stay on your present job, your lender will give you credit for overtime income. They will determine your overtime earnings over the last two years, then calculate a monthly average.

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