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Jul 7, 2013
9 must-do’s after loan preapproval

9 must-do’s after loan preapproval

by Michele Lehner

While it may seem obvious that you need to keep paying your bills during the period between a loan preapproval and your settlement date, some would-be borrowers neglect their finances in the excitement of shopping for a (new practice).

“A preapproval letter is typically valid for 90 days but with the disclaimer that if anything changes with your finances it can impact your preapproval,” says Patricia Napgezek, a senior loan officer “After 90 days, we can do a renewal letter with a recheck of (financial status) and credit.”

No. 1: Don’t apply for new credit.

Many lenders are required to do a second credit check before a final loan approval, says Doug Benner, a loan officer.

“If it’s just an inquiry, that usually doesn’t cause a problem, but if you’ve opened a new account, then it will have to be verified, and that could delay your settlement,” he says.

Your credit score could change because of the new credit, which may mean that your interest rate must be adjusted.

No. 2: Don’t make any major purchases.

If you buy furniture or appliances with credit, your lender will need to factor in the payments to your debt-to-income ratio, which could result in a canceled or delayed settlement. If you pay cash, you’ll have fewer assets to use for a down payment and cash reserves, which could have a similar impact, Benner says.

No. 3: Don’t pay off all your debt.

“Every move you make with your money will have an impact, so you should consult with your lender before you do anything,” says Brian Koss, executive vice president of Mortgage Network. “Even if you pay off your credit card debt, it can hurt you if you close out your account or reduce your cash reserves. We’ll also need to know where the money came from to pay off the debt.”  Consider paying it down to a minimum but leave the account open unless it has been subject to fraud.

No. 4: Don’t co-sign any loans.

Borrowers sometimes assume that co-signing a student loan or car loan won’t affect their credit, but it’s considered a debt for both signers, especially when it’s a new loan.  Put that new car purchase off until the day after your practice loan closes.

No. 5: Don’t change jobs.

If you can avoid it, try not to change jobs or quit early even it seems like a good move.  That could trigger a need to verify employment and you’ll need pay stubs to prove your salary, which could delay your settlement.  That goes for your spouse or significant other if your practice loan has been approved based upon a two-earner household.  This is critical for start-up practice loans where the lender expects your significant other to supply the money for most of your living expenses early on.

No. 6: Don’t ignore any lender requests.

“If your lender recommends something, you should follow directions and do it,” Napgezek says. “You should provide all documents as soon as they are requested, because delaying could potentially delay your settlement.”

No. 7: Stay current on your existing accounts.

Be sure you pay all bills on time and make sure you don’t have an overdraft on any account. If you have payments automatically billed to a credit card, you should continue that practice. “Your preapproval is a snapshot in time, and you want to make sure your finances stay as close to that snapshot as possible,” Koss says.

No. 8: Keep a paper trail of all deposits.

Adding to your assets isn’t a problem, but you have to provide complete documentation of any deposits other than your usual paycheck, says Joel Gurman, regional vice president with Quicken Loans. “Make sure you document everything,” he says. “Be proactive and contact your lender if you receive a bonus or if you’re cashing in your [certificates of deposit] to consolidate your assets. A good lender can advise you on what you’ll need for a paper trail.”

No. 9: Discuss (buyer) and seller concessions.

“Even in a sellers market, there’s sometimes an opportunity to negotiate closing costs with a seller.” (Gurman). Typically buyer and seller will split all closing costs, with the seller paying for the title insurance on a real estate sale.

“Make sure you discuss everything with your lender and stay in constant contact throughout the loan process,” he says.