6 mistakes even experienced borrowers make

Posted by  on Oct 19, 2012

Once your mortgage refinance approval is in hand, your lender will begin the process of finalizing your loan. But whether you have locked in your loan for 60 or 90 days, you will need to be responsive and responsible in order to refinance at the lowest mortgage rates. The reason is that lenders typically check credit and debt-to-income qualifications just before a loan closing as well as at the beginning of the refinancing process.

Relaxing is not recommended

Maintaining control of your finances is essential to a successful refinance. Even experienced homeowners need to be aware of how they could sabotage their own home refinance.

  1. Neglect your paperwork. Once you've turned in the initial documentation for your loan application, such as your W-2s and bank statements, you may think your job is complete. However, lenders often request additional paperwork throughout the loan process. If you delay in responding to the request or are disorganized and cannot provide a paper trail for certain deposits or expenditures, the lender may postpone or even cancel your loan closing for your refinance.
  2. Buy something unusual. You cannot avoid making day-to-day purchases for the month or two while you wait for your mortgage refinance to be complete, but don't buy a car, boat, or another home. Believe it or not, some mortgage brokers say borrowers have done exactly that, assuming that their refinance is complete. Your credit score could drop if you finance a big purchase. And such a purchase could also make your debt-to-income ratio too high or deplete your reserves if you pay with cash.
  3. Apply for more credit. You may think it makes sense to accept a credit offer, especially if you plan to make some home improvements after your refinance goes through, but your credit score may drop if you have too much available credit.
  4. Forget to pay a bill. If you miss a credit card payment or are late with your mortgage payment, your credit score can drop. So be more vigilant than ever during the interim period between your loan application and your closing.
  5. Retire. Even if refinancing your home is part of your retirement plan, you should wait until the final papers are signed before establishing your last day of work. If your mortgage loan approval is based on your income, you'll need to continue generating a paycheck until after the closing.
  6. Change jobs. You may assume that accepting a new job at a higher salary can only enhance your refinance application, but your lender will need to see W-2s from your new job in order to document your continued income. If you are considering a job change, consult with your mortgage broker to find out the best way to handle it.

The same careful planning it took to qualify for the lowest mortgage rate will be necessary well beyond when the loan closes, but the extra vigilance over your finances should pay off handsomely in the end.

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