What to Do After Pre-Approval

Once you've gone through the pre-approval meeting with a lender, you should have a much clearer picture of your financial health and ability to borrow money for a mortgage.

You may also have identified some problem areas that need attention. Working with your lender and a qualified financial professional, you should make any changes that will improve your qualifications as a borrower.

However, be very careful about making changes to your financial picture. A pre-approval is NOT a guarantee for a loan. If you make major changes to your credit, debt, or assets after pre-approval, but before you secure a loan, you could jeopardize your chances of getting any mortgage at all. Lenders commonly re-check your credit within five days of your home purchase closing, and any significant changes to your score can derail your loan.

Here are some actions to avoid after pre-approval:

• Taking on new debt: This will affect your debt load and debt-to-income ratio, which could disqualify you for your preferred loan.
• Making major purchases: Resist the temptation to buy a new car, new furniture, or expensive new vacations -- especially if you're planning to use a credit card. You're better off waiting until after you've completed the purchase of your home.
• Opening a new line of credit: This includes credit cards, loans, or store lines of credit. Opening new credit might lower your credit rating.
• Closing out credit accounts: This might seem counter-intuitive, but closing old lines of credit might actually lower your credit score, especially if you shut down lines of credit that help establish a long credit history for you.
• Paying off old delinquent payments: Again this might seem strange, but your credit rating can be hurt when you pay off old debts, because those accounts are bubbled back up into your recent credit history, where they have more of an impact.

If your lender or broker was not able to pre-approve you for a loan, you should meet with her to discuss the reasons in detail. Here are some common reasons why a pre-approval would be rejected, and what you can do about each.

If your credit report reveals a legitimate problem, such as a late or missed payment that is bringing down your score, work with your lender or broker to explain the problem and take whatever steps are needed to correct it. Sometimes this will mean taking no action at all -- since recent issues carry more weight than old ones, re-opening an old problem to correct it may actually backfire, doing more harm than good.

On the other hand, if you find an error on your credit report, such as an on-time payment that is mistakenly listed as late, or activity that you're certain does not really belong to you -- you should absolutely take action. Contact the credit bureau that issued the report, and inform them of the error. They're required by law to respond within 30 business days. Unfortunately, that can be an eternity during a home purchase. This is another good reason to get pre-approved ahead of time; you have time to fix any problems with your credit report before the clock is ticking on your home purchase.

Your lender or broker should have been made aware of your debt during the pre-approval conversation, and taken that debt into account when arranging your pre-approval. Nevertheless, if your pre-approval was torpedoed by debt, now might be a good time to address the problem directly, either by paying down debt, or by working with a debt counselor or financial planner to determine a good next step.

One important note: if you decide to consolidate or refinance existing debt, be sure to consult a financial planner first, and be clear about your intention to apply for a mortgage. Debt restructuring can have an impact on your credit scores.

Loan applications can be long and confusing, and mistakes happen to the best of us. If your pre-approval was tripped up by information on your loan application, make sure the information is accurate and up-to-date. Work with your lender or broker to correct any errors you find.