Getting pre-approved feels like the finish line. It isn't. Your lender will check your file again before the loan funds, and changes you make in the meantime can delay closing or change the loan. Here is what not to do between pre-approval and closing, and why each one matters.
Key takeaways
- Fannie Mae requires lenders to verify your employment no more than 10 business days before the note date.
- Credit reports and income and asset documents can be no more than four months old at closing.
- New debt found after the underwriting decision can force the loan to be re-underwritten.
- A single deposit over 50% of your monthly qualifying income may need a paper trail.
- The simplest rule: call your loan officer before any financial change, not after.
Why your file gets checked again
A pre-approval is a snapshot. The loan closes weeks later, and the lender has to confirm the snapshot is still true. Three rules drive most of that rechecking.
- Employment is verified right before closing. Fannie Mae requires a verbal verification of employment "no more than 10 business days on or before the note date" for employed borrowers. For self-employed borrowers, the lender must confirm within 120 calendar days that the business exists and that you are still operating it.
- Documents expire. Credit reports and employment, income and asset documents must be no more than four months old when the loan closes.
- New debt reopens the file. Under Fannie Mae's debt-to-income rules, if the lender discovers additional debt or reduced income after the underwriting decision, the loan "must be re-underwritten if the new information causes the DTI ratio to increase by more than the allowed tolerances." If the lender pulls a new credit report, the loan must be re-underwritten.
Freddie Mac's step-by-step mortgage guide makes the same point from the borrower's side. Your application should include debts you "now owe or will owe before this mortgage loan closes," and "differences between your figures and those on the credit report will raise questions and may delay the decision on your mortgage loan."
1. Don't open new credit
No new credit cards, store cards, car loans or personal loans. The CFPB advises borrowers to "try to avoid applying for these other types of credit right before getting a mortgage or during the mortgage process."
There are two problems. Each application can add an inquiry to your credit report, and the CFPB's 45-day rule that groups multiple mortgage inquiries into one doesn't cover a car loan or a credit card. Second, a new account usually comes with a monthly payment, and that payment goes into your debt-to-income ratio. For loans underwritten through Fannie Mae's automated system, the maximum is 50%. If you were already close to your limit, a new payment can push you over. Our guide to debt-to-income ratios explains the math.
Keep paying every existing bill on time, too. Your lender may see your credit again before closing.
2. Don't make large purchases
The new couch, the appliances, the truck you'll need for mountain winters: wait until after closing. Financed on credit, each purchase is new debt the lender has to count. Paid in cash, it can drain the money you have already documented for the down payment, closing costs and reserves.
Either way, the numbers your approval was built on no longer match. Use our closing cost calculator to see how much cash you need on closing day, and leave that money alone.
3. Don't change jobs
Because employment is verified within days of closing, a job change shows up. Fannie Mae's guide says "lenders are responsible for identifying, evaluating, and resolving any employment changes or discrepancies." If the verification can't be obtained, the loan is ineligible for sale to Fannie Mae.
A move to a similar job at the same or higher salary may only mean new pay stubs and a new verification. A switch from salary to commission, or from W-2 employment to working for yourself, is a bigger change. Fannie Mae generally requires a two-year history of self-employment earnings. Quitting outright is the most serious change of all.
If a job change is coming, tell your loan officer before you accept the offer so you can plan the timing.
4. Don't make undocumented deposits
Fannie Mae's depository account rules define a large deposit as "a single deposit that exceeds 50% of the total monthly qualifying income for the loan." On a purchase, if you need those funds to close, the lender must document that they came from an acceptable source. If it can't, "verified funds must be reduced by the amount (or portion) of the undocumented large deposit."
Cash is the hardest to document. If you are selling a car, getting a bonus or receiving money from family, keep the paperwork: the bill of sale, the pay statement, the gift letter. Gifts have their own rules under Fannie Mae's personal gift guidelines, including a signed letter from the donor stating that no repayment is expected and proof of the transfer.
5. Don't co-sign for anyone
Co-signing a car loan or apartment lease for a child or friend makes that debt your obligation. Fannie Mae lets a lender exclude a debt someone else is paying only when the lender obtains "the most recent 12 months' canceled checks (or bank statements)" from the other party showing on-time payments. A loan you co-sign this month has no such history, so its full payment counts against you.
6. Don't move money around
Your lender has already reviewed statements for the accounts you plan to use. Consolidating accounts, opening a new one or shifting funds between banks creates new deposits that may need to be sourced, and new statements to review. Because asset documents can only be four months old at closing, you may have to provide updated statements anyway. Make that job simple by leaving your money where it is.
If you need to move funds, for example to wire your down payment, ask your loan officer how to do it and keep the statements from both accounts.
7. Don't ignore document requests
Requests for an updated pay stub, a fresh bank statement or a letter of explanation are normal, and they are often driven by the age limits and verification deadlines above. A slow reply can push your closing date.
The end of the process has its own deadline. Under federal rules, your lender must give you the Closing Disclosure at least three business days before closing, so the final days leave little room for late paperwork. Answer requests the same day when you can. For more ways to keep things on schedule, see our guide on how to expedite the mortgage closing process.
What to do instead
- Keep paying every bill on time, including the cards you aren't using.
- Keep your job, your accounts and your spending steady.
- Save paperwork for any money that comes in.
- Answer document requests quickly and completely.
- Call your loan officer before any change, not after.
What this means for you
A change in your own file is one of the few closing delays you control completely. None of these rules mean your life has to stop for a month. They mean the loan officer should hear about a change before it happens, while there is still time to plan around it.
Cedar Home Loans has offices in Boulder, Vail and Telluride. If you are about to start the process, get pre-approved with a full review up front, or call us at (303) 549-5277 with a question about your file. Cedar Home Loans NMLS #1660298. Andrew McBryan NMLS #304312.
Sources
- Fannie Mae Selling Guide — B3-3.1-07, Verbal Verification of Employment
- Fannie Mae Selling Guide — B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns
- Fannie Mae Selling Guide — B3-6-02, Debt-to-Income Ratios
- Fannie Mae Selling Guide — B3-6-05, Monthly Debt Obligations
- Fannie Mae Selling Guide — B3-4.2-02, Depository Accounts
- Fannie Mae Selling Guide — B3-4.3-04, Personal Gifts
- Fannie Mae Selling Guide — B3-3.2-01, Underwriting Factors and Documentation for a Self-Employed Borrower
- Freddie Mac — Your Step-by-Step Mortgage Guide: From Application to Closing
- CFPB — What happens when a mortgage lender checks my credit?
- CFPB — What is a Closing Disclosure?
