When you’ve signed a purchase contract, you agree to buy the home. You might have some contingencies on the contract, such as a home appraisal contingency or inspection contingency. These give you a way out of the loan if things don’t go as planned, but if you back out under any other circumstances, you could lose your earnest money.
Earnest money is the deposit you put down in good faith that shows the seller that you are serious about buying the home. Buyers usually put 2% – 4% of the sales price down in earnest. If you close on the sale, the money goes toward your down payment.
If you back out of the contract and void it, the seller can keep the funds to make up for the time he/she took the home off the market.
When you’re under contract, you are knee-deep in the underwriting process and there are certain things you shouldn’t do so you don’t risk your approval.
Don’t Take on New Debt
Taking on new debt can bring you right back to square one. When we pre-approve you for a loan, we look at your gross monthly income and compare it to the debts you have at that time. If your debt-to-income ratio fits within our guidelines, you get approved.
But we’ll pull your credit report again before you close. If you took on new debt, it changes everything from your credit score to your debt ratio. We’ll have to recalculate your debt ratio and determine if you still qualify for the same loan amount. If the debts are excessive or you were already on the brink of not getting approved because of your debt ratio, it could cause you to lose your approval.
Don’t Risk Lowering your Credit Score
Your credit score is one of the most important factors in your approval. It’s best to keep your credit score as stable as possible after getting pre-approved. Since we pull your credit again before you close, you could risk your loan approval if you did anything to change your credit score.
To keep your credit score stable, do the following:
- Don’t close any old accounts, keep them open even if you don’t use them
- Don’t take out any new credit
- Make all your payments on time
- Don’t use your credit cards
Don’t Change Jobs
If you can help it, don’t change jobs. If you have to change jobs for circumstances outside your control, talk to your loan officer right away. When you change jobs, you change your income, debt ratio, and employment history.
Typically, you need a 2-year job history, but if you change jobs within the same industry and it has the same pay, you may be able to get through the process without any hiccups. If there are major changes, though, you may need to delay your closing until you have a few months of income and experience under your belt.
Don’t Make Large Deposits or Withdrawals
If you make any large deposits or withdrawals in your bank account, it’s a red flag to underwriters. A large deposit could mean you took out a loan somewhere. A large withdrawal could affect the money the underwriter already approved for you to close on your loan.
Try leaving your bank account alone except for the normal deposits and withdrawals you make in a normal month.