Lending Process DOs and DON'Ts

eBuying a home is one of the biggest financial moves you will ever make. Whether you are a first-time buyer or a seasoned homeowner, understanding the lending process is crucial for a smooth experience. At Crescent Title, we help clients navigate the complexities of real estate transactions, and part of that includes providing guidance on what to do and what to avoid during the mortgage process. Here is a detailed look at the lending process DOs and DON'Ts to help you stay on track and protect your investment.

DO: Get Pre-Approved Early

Before you start shopping for a home, it is essential to get pre-approved for a mortgage. Pre-approval helps you understand your budget and shows sellers that you are a serious buyer. During pre-approval, a lender will review your financial information, including your credit score, income, and debts, to determine how much they are willing to lend you. Having a pre-approval letter in hand can give you a competitive advantage, especially in a tight housing market.

DO: Keep Your Financial Documents Organized

From pay stubs to bank statements, lenders will ask for a variety of documents to verify your financial status. Keeping these documents organized and readily available will speed up the approval process. You should have at least two months of bank statements, two years of tax returns, recent pay stubs, and documentation for any other sources of income. Having all paperwork in order shows lenders you are responsible and prepared.

DO: Respond Quickly to Lender Requests

Throughout the loan process, your lender may request additional documents or clarification. Responding quickly to these requests is critical to avoid delays. The mortgage approval timeline can be tight, especially when closing dates are approaching, so timely communication with your lender can make a big difference in keeping everything on schedule.

DO: Maintain Stable Employment

Lenders want to see that you have steady employment. Any changes in your job status during the loan process could raise red flags. If possible, avoid changing jobs, quitting, or making any employment decisions until after your mortgage has closed. A stable job history reassures lenders that you have the means to repay your loan.

DO: Pay Your Bills on Time

Even after you are pre-approved, lenders will continue to monitor your credit. Late payments on your credit cards, car loans, or other bills can negatively impact your credit score and threaten your mortgage approval. Staying current on all bills is vital until your loan officially closes.

DO: Ask Questions

The lending process can be complicated, and it is important that you fully understand the terms and conditions of your mortgage. Do not hesitate to ask your lender or your title professional at Crescent Title any questions you may have. Understanding your loan terms, interest rate, payment schedule, and closing costs ensures you are making informed decisions.

DON'T: Make Large Purchases

One common mistake homebuyers make is purchasing big-ticket items before closing on their home. Avoid buying new furniture, cars, or expensive electronics until after the loan is finalized. Large purchases can alter your debt-to-income ratio and negatively impact your loan approval.

DON'T: Open or Close Credit Accounts

Changes to your credit profile can have major effects on your mortgage approval. Opening new credit accounts or closing existing ones can lower your credit score or change your credit utilization rate, both of which are factors lenders consider. It is best to leave your credit as it is until after your home loan closes.

DON'T: Make Large Cash Deposits Without Documentation

If you deposit a large amount of cash into your bank account, lenders will require an explanation and documentation of the source. Unexplained cash deposits can raise concerns about your financial stability. If you do need to deposit cash, be sure to have proper documentation such as a bill of sale or gift letter.

DON'T: Co-Sign for Others

While it may be tempting to help a friend or family member by co-signing a loan, doing so during your mortgage process can be risky. Co-signing makes you legally responsible for the debt, and it will appear on your credit report. This additional financial obligation could cause lenders to reconsider your loan approval.

DON'T: Ignore Pre-Closing Instructions

As your closing date approaches, your lender and title company will provide specific instructions to ensure everything moves forward without issue. These instructions may include finalizing homeowners insurance, reviewing closing disclosures, and wiring your down payment funds. Ignoring these instructions could delay or even jeopardize your closing.