What Can I Do (or Avoid) During Pre-Approval to Ensure My Loan Process Goes Smoothly?

Congratulations on getting pre-approved for a mortgage! This is an important step toward buying a home, but it’s only the beginning. To ensure your loan process goes smoothly and you don’t risk losing your pre-approval status, it’s essential to understand what actions can help or hurt your chances of getting final approval.

Here’s a list of things to avoid during the pre-approval process, along with tips to keep your application on track.

1. Avoid Major Purchases on Credit

When you’re pre-approved, lenders look closely at your debt-to-income (DTI) ratio, which shows how much of your income goes toward paying debt. Taking on new debt, like buying a car or making a large purchase on a credit card, can increase your DTI and make you look riskier to lenders. Even if you think you can handle the payments, lenders might see it differently.

Tip: Hold off on any big purchases until after you’ve closed on your home. This will help keep your DTI stable and make the final approval easier.

2. Don’t Change Jobs or Employment Status

Lenders prefer to see stable employment because it shows that you have a steady income to make mortgage payments. Changing jobs or employment status (like moving from salaried to freelance) can raise questions about your income stability.

Tip: If a job change is unavoidable, talk to your lender beforehand. Some types of changes may be acceptable, especially if you’re moving to a higher-paying role within the same field.

3. Avoid Opening New Credit Accounts

Each time you apply for credit, it shows up on your credit report as a “hard inquiry.” Too many inquiries can lower your credit score, which might impact your loan terms or eligibility. Opening new accounts also increases your overall debt obligations, which lenders will factor in.

Tip: Avoid applying for any new credit cards, loans, or store financing options until after closing on your home.

4. Don’t Miss or Make Late Payments

During the pre-approval process, lenders can continue to check your credit report, and any missed or late payments can be a red flag. Late payments on existing debts can lower your credit score, which could result in higher interest rates or a denied loan.

Tip: Stay on top of your current bills and payments to keep your credit score stable. Setting up automatic payments can help prevent accidental late payments.

5. Avoid Large Cash Deposits or Withdrawals

Lenders want to see a clear and stable financial picture. Large, unexplained deposits or withdrawals can raise questions about the source of funds or whether you’re taking on new debt. Any large sums appearing in your account may need to be documented and explained.

Tip: Avoid moving large sums of money into or out of your bank accounts. If you need to make a deposit (like a gift from family for your down payment), make sure it’s properly documented and that your lender is aware.

6. Don’t Co-Sign Loans for Others

Co-signing on a loan, even for a family member or friend, makes you legally responsible for that debt. Lenders will consider the co-signed debt as part of your DTI ratio, even if you aren’t the one making payments.

Tip: Avoid co-signing any loans until after your mortgage has closed. This will keep your DTI low and your financial profile clean.

7. Don’t Close Any Credit Accounts

You might think that closing old credit card accounts will help you look more financially responsible, but it can actually harm your credit score. Closing accounts can lower your available credit, which could increase your credit utilization ratio and lower your score.

Tip: Keep all credit accounts open during the loan process. If you need to close an account, wait until after closing on your home.

8. Keep Consistent Spending Patterns

Lenders will look at your bank statements to see how you handle your money. Any unusual or inconsistent spending patterns can raise questions or concerns about your financial stability.

Tip: Keep your spending steady and avoid sudden, large purchases or high spending during the pre-approval period.

9. Save Extra Funds for Unexpected Costs

While this isn’t something to “avoid,” it’s a good practice to prepare for extra costs during the buying process, like closing costs, moving expenses, and potential repairs or upgrades. These costs can add up quickly, so having a little extra saved will make your transition smoother.

Tip: Continue saving as much as possible during the loan process. Having additional funds can demonstrate financial responsibility and make your final approval smoother.

10. Stay in Contact with Your Lender

Throughout the process, your lender may reach out to request updated documents or information, and it’s essential to respond quickly to avoid delays. The smoother the communication, the faster you can address any issues that may arise.

Tip: Keep an open line of communication with your lender and promptly provide any requested information. This will help keep your loan moving smoothly toward final approval.

Final Thoughts

The pre-approval process is an exciting step, but it requires careful planning and smart financial decisions to keep it intact. By avoiding major purchases, job changes, new credit, and other financial shifts, you’ll make it easier for lenders to finalize your loan. Remember, keeping your financial profile stable and staying in touch with your lender can make all the difference in achieving a smooth and successful home purchase!