Seven Things You Must Never Do During Loan Approval
· Loan Talk
One mistake during underwriting can kill your deal. Here's what lenders watch for.
You have found your home. The offer is accepted. The lender has approved your loan in principle. But here is the part most first-time buyers, especially international buyers, do not understand: the loan approval process is not finished. It is conditional. Everything you do from now until closing can affect whether that approval holds. We have seen deals collapse in the final weeks because a buyer made a single mistake. Here are seven things you absolutely cannot do while your loan is being processed and underwritten.
The first and most critical rule: never change jobs or quit your current job without telling your lender immediately. Most lenders verify employment on the day you close. If you have switched jobs, they will need written proof that the new job is permanent, that the salary is the same or higher, and that the start date does not create a gap in employment. If you cannot show continuity of income, the lender can withdraw the approval. The same rule applies if you are self-employed: do not change your business structure, close a business, or move a significant portion of income to a different entity without notifying your lender. Your loan application was based on the income documented on your tax returns and pay stubs as they exist today.
Second: never apply for new credit or co-sign a loan. This includes credit cards, car loans, personal loans, or store financing. When a lender runs a final credit check days before closing, they will see any new accounts. New credit lowers your credit score and increases your debt-to-income ratio, the percentage of your monthly income that goes to debt. Lenders have minimum ratios they will accept, commonly in the range of 43 to 50 percent. A single new car loan can push you over that limit and trigger a denial. Co-signing someone else's debt makes you legally responsible for that loan, which counts toward your debt-to-income ratio even if they make the payments. Wait until after closing to help anyone else borrow money.
Third: never make large deposits into your bank accounts without documenting where the money came from. Lenders verify the source of your down payment and closing costs. If a big deposit appears in your account in the weeks before closing and you cannot explain it, the lender will ask. Standard documentation includes a written letter from the person who gave you the money, a copy of their bank statement showing the transfer, and your bank statement showing receipt. If the money is a gift, many lenders require a gift letter stating that the funds do not need to be repaid. If you cannot produce this documentation, the lender may not be able to count that money toward your down payment, which could leave you short of cash at closing.
Fourth: never miss a payment on any existing debt, mortgage, auto loan, credit card, student loan, medical bill, or anything else. A single late payment in the weeks or days before closing can trigger a last-minute review. Lenders are watching your credit report right up until they fund the loan. A 30-day late payment can lower your credit score significantly and give the lender grounds to re-evaluate your approval. If that payment is more than 30 days late, the lender can deny the loan entirely. Automatic payments are your friend during this period: set them up for every account you have and do not rely on remembering to pay.
Fifth: never make large cash withdrawals or transfers from your bank accounts without being ready to explain them to your lender. Lenders are required by federal law to report and investigate large cash transactions. If they see cash leaving your accounts in unexplained amounts, they may need to file a report with federal regulators, which can hold up your closing. This rule surprises many buyers from overseas, where cash transactions are common. In the United States, especially during a real estate purchase, keep money in your bank accounts where it can be tracked and documented.
Sixth: never make large purchases or accumulate new debt. Even if you have the cash, do not buy a car, furniture, or anything else that requires financing in the weeks before closing. This goes back to debt-to-income ratio, but it also signals to the lender that your financial situation may have changed. If you are spending money this way, the lender may wonder whether you will have enough cash reserves after closing. Many lenders require you to keep a certain amount of cash in reserve, sometimes three to six months of your new mortgage payment, after the purchase is complete. A major purchase can disqualify you.
Seventh: never update or change your personal information, name, address, phone number, or employment details, without informing your lender first. Lenders need to stay in contact with you. If your phone number changes and they cannot reach you, it delays the process. If your name or address changes before closing, it must match exactly on the final loan documents. Any mismatch between your loan application, your bank statements, your employment verification and your closing documents can trigger a document review or, in rare cases, a re-qualification. Foreign-national buyers often have multiple name variations (family name order, transliteration, maiden names) on different documents. Establish one version of your legal name with your lender and keep it consistent across every application.
The message is simple: your lender is not trying to be difficult. These rules exist because the lender is putting millions of dollars at risk on your promise to repay. Once the loan funds and you own the home, you can do anything you want with your money and your credit. Until then, every financial move you make is visible to the lender and can affect whether the loan closes. The best approach: do nothing new, do not spend money, do not borrow money, and communicate with your lender immediately if anything in your financial life changes. If you are unsure whether something is allowed, ask. It is far better to ask before you do it than to apologize after.
If you have questions about what is allowed during your loan process, or if you need a personalized conversation about how these rules apply to your specific situation, reach out to Shirley. The approval period is short, usually 30 to 45 days, and staying disciplined during that window is what gets you to the closing table.
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