What NOT “To Do” during the USDA Loan Application process!
Last week, we reviewed five important things to do during the USDA loan application process. In contract today, we will detail what NOT “To Do” when seeking USDA mortgage approval.
Today’s video is a great reminder of how fragile the loan approval process can be and provides important tips on how to keep your mortgage application headed towards the closing table!
Now, before we get started, remember to download our USDA Blueprint for Success with the link below. This free guide is designed to walk you through the USDA application process and is a great educational resource for both homebuyers and Realtors alike.
USDA Loan Application: What NOT “To Do”
Made famous by Benjamin Franklin, the saying “an ounce of prevention is worth a pound of cure” still holds true today, especially in the mortgage application process! It is important to be proactive and limit mistakes which could come back to haunt you during USDA loan underwriting phase.
As such, here are some common pitfalls to avoid during the USDA mortgage application process:
Do NOT Open or Apply for New Credit!
Consumers today are being barraged with an onslaught of offers for credit! While those pre-approved credit offers may be enticing, it is important to not incur any new debt during the application process. It is critical to NOT respond to these offers for credit. Be proactive and do not put yourself in a situation where your USDA loan application could be denied.
Whether it be new furniture, an auto loan, or a new credit card, opening new debt can have a two fold effect. Any additional inquires can be a factor towards lowering your credit score and any new debt incurred can affect your debt ratios.
When Should You Not Payoff Negative Credit Accounts?
While many may think that making a payment on a negatively reporting credit account such as a collection or charged-off account would help your USDA loan application, the results could be the exact opposite!
As crazy as it sounds, this could actually hurt your USDA loan approval chances due to the impact it could have on your credit score. For example, if the account in question has not recently reported to the credit bureaus, making a payment can have the effect of updating the most recent activity along with the reporting date. Now, everyone’s credit is different, so just be careful to analyze the details before making a payment on a negative account.
While paying off a negative account may be a condition of loan approval, make sure to discuss any such requirement with your lender. With our credit experience, the Metroplex team can provide the proper advice for you to weigh the pros and cons before making a payment on any negative credit accounts.
Do NOT Increase Credit Card Balances
Maintaining appropriate credit card balances in comparison to your credit limits is an essential factor towards keeping your credit scores high!
When your credit card balances increase, this can be one of the quickest ways to lower your credit score. Also, an increased credit card balance also leads to increased minimum monthly payments which can negatively impact your debt ratios.
Remember to keep your spending in check, because higher credit scores can significantly help your USDA loan application!
Do NOT Close Credit Card Accounts!
As mentioned above, it is important to keep appropriate balances in comparison to your credit limits.
However, closing out a credit card eliminates any available credit which can have an almost instantaneous negative impact on your credit score. This can impact the very important ratio between your credit card amount owed and your available credit limit.
While you may think that it is a good thing to close out your credit card, this could actually hurt your credit and USDA loan approval.
Do NOT Make Unverified Bank Deposits.
The USDA underwriting process will require verification of deposits along with the source of where they come from. while frustrating, even small amounts may have to be verified. This is a process referred to as source and seasoning.
Many think that by depositing cash into their bank account it will show that they have more assets and help their mortgage application. However, if we are unable to verify and give credit for that deposit, this could actually hurt your USDA loan approval chances.
While this is not an exhausting list of what you should NOT “To Do” during the USDA loan application process, it is important to stay proactive!
If you have a qualifying question or a loan approval that is experiencing trouble, remember that I started the company way back in 2001. Let our experience be a resource for you!
Plus, you can download any of our FREE USDA Resources here. These ready to download PDFs will answer your pertinent questions.
As always, I want to thank everyone for the continued recommendations and trusting us with all of your mortgage needs.