Although we might be biased, there’s no doubt building a new home comes with countless possibilities. Energy-efficient features, up-to-date designs, and customizable floor plans are just the beginning. When buying new, you have two choices: a quick move-in if you’re ready now or in the near future or a to-be-built home where you can build from the ground up.
Unlike a quick move-in home, a to-be-built home can mean several months between your contract and closing. During this time, it’s important to be aware of the factors that can affect your mortgage approval.
The good news? A little planning and communication can help protect your progress and make the journey to your new home as smooth as possible. Read on for what actually affects your mortgage approval. Let’s get into it!
What Factors Support Mortgage Approval?
While every buyer’s financial situation is unique, lenders generally look at several key areas when evaluating your ability to qualify for a mortgage, including:
Stable, Documented Income
Consistent income that can be verified helps your lenders understand your ability to make your future mortgage payment.
Stable Employment History
A consistent employment history can help support your loan application.
On-Time Paperwork
Ensure you provide the requested pre-approval and loan documentation on time to keep the process moving.
Strong Credit
Your credit score and history help lenders evaluate your creditworthiness.
Available Assets
Lenders review the funds you’ll use for your down payment and closing costs, along with any other available assets.
Ongoing Financial Stability
Your financial status can continue to be reviewed throughout the homebuilding process. This makes maintaining healthy financial habits more important than ever!
What If I Change Jobs During the Pre-Approval Process?
Changing jobs doesn’t necessarily mean you can’t qualify for a mortgage. However, it’s important to keep your Loan Consultant informed about any employment changes. They can help you understand what documentation might be needed, and whether it could affect your loan.
How to Maintain a Strong Credit Profile
Your credit profile is an important part of your mortgage application. It’s something worth protecting during the homebuilding process.
Healthy credit habits include:
- Paying your bills on time
- Keeping credit card balances low—generally 30% or less of your available credit limit is a good goal
- Avoid missed or late payments
- Avoid collections, charge-offs, and bankruptcies
- Maintain an established credit history
- Maintain a healthy mix of credit types
- Continue these habits throughout the building process
Important to Remember
Even after you’re pre-approved, your credit may continue to be reviewed. That’s why it’s important to maintain your financial habits from pre-approval through closing.
Maintain a Healthy Debt-To-Income Ratio
Your debt-to-income ratio (DTI) helps lenders understand how your monthly debt obligations compare with your income.
In other words, DTI compares the amount you owe each month to your gross monthly income before taxes.
Monthly debt obligations ÷ gross monthly income = DTI
What Can Help Maintain a Healthy DTI?
- Pay down existing debt
- Keep credit card balances low
- Avoid unnecessary new monthly payments
- Maintain a stable income
Having money in the bank is helpful for your overall financial picture, but savings cannot replace your DTI. It’s your monthly debt obligations compared with your gross monthly income that matters for the ratio.
Some More Helpful Habits
- Save consistently
- Keep funds in accessible, documented accounts
- Provide documentation for large deposits
- Avoid cash deposits
- Keep sufficient funds throughout the construction process
If you’re planning to move money between accounts, receive gift funds, or sell an asset, talk with your Loan Consultant first. They can help you understand what documentation may be required.
Now that we’ve covered what to do, let’s dive into what not to do when it comes to staying ready for mortgage approval.
What Not to Do While Waiting for your To-Be-Built Home
Here’s a list of things to avoid before talking to your Loan Consultant.
Open New Credit Cards
A new credit card can result in a hard inquiry, affect your credit score, and potentially add a new monthly debt obligation.
Remember, money in the bank doesn’t offset monthly debt when calculating your DTI.
Finance Large Purchases
The hard truth: that new car can wait. Financing a large purchase can add a new monthly payment and potentially affect your DTI or loan qualification.
Make Large or Unexplained Deposits
Large deposits may require additional documentation. They can also add time to the loan process.
Frequently Transfer Money Between Accounts
Moving money around can create additional documentation requirements and may also add time to the loan process.
Miss Payments
Even one late or missed payment on a credit card, auto loan, student loan, or personal loan can affect your financial standing.
Co-Sign For Someone Else’s Loan
Co-signing creates a financial obligation, and that debt may be considered when your lender evaluates your finances.
Ignore Requests from Your Lender
Your lender may need updated pay stubs, bank statements, or other documentation as you get closer to closing. Responding quickly can keep things moving and shaking!
Keep Your Finances Top of Mind
During the construction process, your credit can change, your debt can increase, your employment or income can shift, and your savings can fluctuate. That’s why it’s important to continue making thoughtful financial decisions throughout the journey.
Design Studio Selections: Know Your Spending Power
One of the most exciting parts of building a new home is getting to personalize every detail at the Design Studio.
But remember: every upgrade can affect your final sales price, loan amount, and monthly mortgage payment. Understanding your budget before making selections can help you prioritize the features that matter most while keeping your financing goals on track.
Protect Your Progress and Enjoy the Journey Home
There you have it! We hope this blog empowers you to make smart financial decisions during one of the most exciting times of your life. By maintaining healthy financial habits, staying in communication with your Loan Consultant, and understanding how your choices can affect your financing, you can help protect your path to closing.
Ready to start building? Explore Taylor Morrison homes and communities today.
