Getting blindsided on your loan application is not something anyone wants. Not the realtor, not the loan officer, and especially not you, the homebuyer.
Particularly NOW with the volatility in interest rates and changing market, you need to be aware of three things:
- When the interest rate goes up, your loan approval can change.
Keep in touch with your loan officer while you shop for a home, because your preapproval letter can turn void if rates jump up and you are buying at the top of your price range.
- If your down payment is minimum, underwriting will be tougher on your debt-to-income ratio.
Gone are the days when you could push your debt-to-income ratio to 49.9% on a 3% down payment loan and still get approved. With the volatility in interest rate now, most underwriters are saying keep the DTI below 43%.
43% DTI means all debts on your credit report plus the proposed new mortgage payment (including taxes, insurance, mortgage insurance) = 43% of your gross income.
Your gross income is what the underwriter says it is, not what your personal spreadsheet says it is.
- Any purchase made during the loan process can void your approval.
Even if you have signed all mortgage disclosure documents, your loan can still be denied if you make a new purchase, such as: furniture, appliances, an automobile, or even open a new credit card.
Underwriters monitor your credit activity every day until your loan closes and funds.
Yes, they can do that! Federal lending law gives them the right to turn your approval into a denial, even after you have signed the contract, if your financial or credit situation changes.
Once you are preapproved, maintain the status quo until closing. And, please, keep in communication with your loan officer, who is your advocate, looking out for your best interests.