09
Jan
By Fred Gruber
Home Buyer Tips

Why Closing Old Credit Accounts Can Hurt Your Mortgage Approval

When you are preparing to buy a home, it is natural to want your credit profile to look clean and organized. Many buyers think closing old credit accounts will improve their score, simplify their finances, and make them appear more responsible to lenders. In reality, closing old accounts can have the opposite effect. Those accounts play a much bigger role in your credit profile than most people realize and shutting them down can create sudden changes that impact your mortgage approval.

Understand How Closed Accounts Affect Your Credit History

Your credit history length is a major part of your credit score. Older accounts help build a long, strong payment record, and closing them can shorten your overall history. When you close an account, it eventually stops contributing to your average age of credit. A shorter credit history can lower your score and make your credit profile look less stable, which can affect the rate you receive or your loan approval altogether.

See How Closing Accounts Impacts Your Credit Utilization

Credit utilization is the percentage of available credit you are currently using. When you close an old card with a high limit, your total available credit drops instantly. This makes your utilization ratio go up, even if your spending stays the same. A higher utilization ratio can lower your score, and lenders view it as a sign of financial stress. Keeping older accounts open gives you more available credit and a healthier utilization ratio.

Know Why Lenders Look Closely at Recent Credit Changes

Lenders prefer to see stable, predictable financial behavior. Closing accounts shortly before applying for a mortgage can look risky because it changes your credit profile right before a major purchase. Even if your intentions are good, lenders may worry that you are trying to manage debt abruptly or hide financial strain. Consistency is key, and the fewer sudden changes you make before applying, the better.

Understand the Value of Long-Term On-Time Payments

Old accounts with long histories of on-time payments help strengthen your credit profile. These accounts show lenders that you have managed credit responsibly for years. Closing them removes some of that positive history from your active credit mix. Even if the account stays on your report for a while, the impact weakens over time. Keeping these accounts open preserves your strongest credit advantages.

Avoid Making Changes Right Before a Mortgage Application

A mortgage application is not the time to reset or rearrange your credit accounts. If you want to simplify your finances, it is best to do it after closing on your home. Before applying, avoid closing cards, opening new ones, or making large changes to your credit usage. The goal is to show lenders stability, steady habits, and a well-managed credit profile.

Closing old accounts may seem like a smart cleanup strategy, but it often hurts more than it helps during mortgage approval. By keeping your accounts open, maintaining low balances, and staying consistent, you can protect your score and present a stronger, more stable financial picture when you apply for a home loan.

30
Dec
By Fred Gruber
Mortgage Tips

How the Sharing Economy Is Changing Mortgage Underwriting

The rise of the sharing economy has changed the way many people work, earn, and budget. Income from rideshare driving, freelance projects, short-term rentals, and delivery apps has become a normal part of modern finances. These new income streams are helpful for building savings and paying bills, but they also affect how lenders view your mortgage application. Understanding how the sharing economy influences underwriting can help you prepare for a smooth approval process.

Know How Lenders View Non-Traditional Income
Income from rideshare apps, delivery platforms, online marketplaces, and short-term rental hosting does not flow through a traditional payroll system. Because of this, lenders need more documentation to verify it. They want to see that your income is stable, predictable, and tied to real work, not one-time payments. If you earn through the sharing economy, tax returns, bank statements, and year-to-date income summaries become essential.

Understand the Need for a Two-Year Income History
For most non-traditional income, lenders look for at least two years of consistent earnings. This history helps them confirm that your sharing economy income is reliable. If your earnings change throughout the year, lenders will average your income to determine the amount they can use for your mortgage approval. This means the sooner you begin tracking and documenting your income, the stronger your application will be.

Keep Business and Personal Transactions Separate
One of the biggest challenges with sharing economy income is separating business earnings from personal transfers. Mixing these payments can confuse underwriters, especially if deposits look inconsistent. Opening a separate bank account for your sharing economy work helps create a clean paper trail. It makes your financial profile clearer, and it reduces the number of questions lenders must ask during underwriting.

Track Your Expenses and Deductions Carefully
Many sharing economy workers write off business expenses such as mileage, equipment, supplies, and maintenance. These deductions can reduce your taxable income, but they also reduce the income lenders can use. If your deductions are too high, your reported income may appear lower than what you actually earn. Before applying for a mortgage, review your tax returns and consider how your deductions might affect your qualifying amount.

Consider the Impact of Short-Term Rental Income
Short-term rental platforms like Airbnb and Vrbo have created new income opportunities for homeowners. Some lenders allow this income to be used for qualification, but only with strong documentation. You may need a history of rental bookings, proof of ownership, tax filings, and evidence that the property is permitted for short-term rentals. Clear records help lenders feel confident that the income will continue.

The sharing economy has opened up flexible earning options, but it also creates new considerations during mortgage underwriting. With careful documentation, clean bank statements, and long-term consistency, you can strengthen your application and show lenders that your income is reliable and stable.

06
Nov
By Fred Gruber
Mortgage Tips

Understanding an Appraisal Contingency in Your Home Purchase

When buying a home, you have the option to include contingencies in your purchase contract. These protect you by setting certain conditions that must be met for the contract to remain valid. If any contingency isn’t satisfied, you can back out of the sale without penalty. Three main types of contingencies help protect buyers: appraisal, financing, and home inspection contingencies. Here’s how each can impact your home buying experience.

The Appraisal Contingency

An appraisal contingency allows you to step back from the sale if the property appraises for less than the agreed purchase price. Since lenders typically only loan up to the appraised value of the home, this contingency is essential to avoid overpaying. If the home appraisal is lower than expected, you can either renegotiate the price with the seller, make up the difference with a larger down payment, or back out of the sale without losing your deposit.

In competitive markets, leaving out this contingency can make you a more attractive buyer, but it’s a trade-off that could leave you paying above market value.

The Financing Contingency

If you’re relying on a mortgage, a financing contingency protects you if you’re unable to secure full loan approval. While pre-approval offers an estimate of what you can afford, the official loan approval depends on final underwriting. With this contingency in place, if your loan falls through, you can back out of the deal and recover your deposit.

The Home Inspection Contingency

This contingency gives you peace of mind by allowing you to have the home inspected for structural issues, hidden damage, or safety concerns. If any serious issues arise, you can negotiate repairs with the seller or even back out of the purchase. A professional home inspector can spot things the average buyer may miss, so this contingency is highly recommended for most homebuyers.

What Happens If the Appraisal is Too Low?

If the property’s appraised value is below the agreed price, you have three main options:

  1. Increase your down payment to cover the difference.
  2. Negotiate a lower purchase price with the seller.
  3. Use the appraisal contingency to walk away from the deal and get your deposit back.

An appraisal contingency can give you leverage in price negotiations, especially if the seller wants to avoid losing the sale. However, in a competitive market, waiving this contingency can make your offer more appealing, as it signals to the seller your commitment to the purchase regardless of appraisal.

Each contingency serves as a financial safeguard, providing flexibility and protection at different stages of the buying process. Including these contingencies in your offer ensures you’re not cornered into a deal that could end up costing you more than anticipated.