3 Things That Can Hurt Your Ability To Qualify for a Loan

Here’s a big truth when it comes to the ability to qualify for a loan when purchasing a property….

…credit can play a huge part in your ability to obtain a loan, the interest rate that you receive and potentially the loan product you end up with.

When you plan on using traditional financing, from a banking institution, to purchase a property you can be certain that your lender will be pulling your credit.

Throughout the entire loan process, your lender will be reviewing your financial profile on an ongoing basis UNTIL you get to the closing table.

Many individuals who plan on using a loan end up making some major mistakes throughout the loan process that ultimately ends up hurting their final ability to use the loan to purchase the home or rental they want.

In as easy to understand terms as possible…you want to be nearly financially silent during this process.

What does this mean?

The way your financial profile looks when you start the loan process….

…needs to remain as close to the same as possible until you get to closing.

This means don’t go buy a new car that requires a car loan while you’re in the process of buying a house.

This will have a major impact on your financial profile and cause issues with the lending process.

Don’t have any large deposits or withdrawals that aren’t a normal occurrence in your accounts.

Again, this causes a red flag and be a major hiccup in you obtaining financing.

As a rule of thumb….here are 3 things that can hurt your ability to qualify:

Opening or applying for new credit:

When you open any new credit or debt this results in the creditor to run your credit report which can alter your score. This can result in raising your monthly debts which becomes an issue for your monthly debt to income ratio.

You want to avoid raising significantly any credit lines or credit cards and avoid having your credit run during this period of time. (This can include car companies, department stores, credit card companies, etc. )

If you do happen to accidentally do this while you are in the process of obtaining financing you need to inform your lending as soon as possible so they are aware of the new liabilities and assess the new situation.

Changing Jobs:

As much as possible, try to avoid changing jobs during the loan process. I realize sometimes this is out of your control; however, it can have major implications for your loan process.

This will result in more paperwork and could potentially delay your closing if it isn’t addressed early enough in the process. Lenders will do a verification of employment so if you’re planning to change jobs, address that with your lender at the beginning of the process.

Transferring Funds From Account to Account:

When you are obtaining a loan, part of the process is verifying income (which allows you to qualify for the loan) as well as any assets that you have and could potentially use for down payment.

All funds that are used for in this process will need to be documented and sourced. You may get asked to explain certain deposits or transfers if they happen and are being used for the loan application or settlement.

If asked you may need to submit additional documents or copies of cancelled checks so there is a paper trail.

 

So the reality is that the loan process can be slightly daunting and it may seem like your lender is asking for detail on everything (why not just take a blood sample) but the truth is there are federal and institution guidelines that they must follow that require a fairly thorough loan process.

 

So hang in there and do your part in avoiding the 3 things I mentioned above and that should help make the process move much smoother.

 

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