Will a Cellphone Plan Affect My Mortgage Application?
If you plan to apply for a mortgage loan in the next three months, avoid applying for any other credit until after your loan is approved and funded. Additional debts such as a new cellphone plan may add enough to your monthly payments to prevent you from qualifying. Mortgage lenders review credit reports from the three major credit-reporting agencies. The lender will look at your total obligations and compare them to your income. If your lender believes you have too much debt for your income, the loan will be declined.
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Check Your Credit
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Check your credit two or three months prior to applying for a mortgage loan. Obtain a free copy at annual credit report.com. Look for any items that are incorrect and request their correction. You will receive a copy of the corrected report within 60 days. Errors on your report can substantially lower your credit score and prevent you from getting your loan approved.
FICO Scores
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The major credit reporting agencies generate a credit score, called a FICO score, with their reports. Any negative items on your report affect your score. In addition, your score will drop when you apply for additional credit. It will go back up again, after the new creditor reports your payment history for two or three months. Don't apply for a new cellphone plan or any credit other than the mortgage loan for at least three months prior to applying for your new mortgage.
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Debt Ratio
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Lenders also look at your debt ratios. Two ratios are calculated. The first is your housing obligations divided by your income. The other is your housing obligations and all of your other monthly debts divided by your income. The calculations generate debt ratios that help to determine your ability to pay your debts over time. Lenders have specific ratios that they allow. The ratios vary from one lender to another.
Conclusion
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Adding a phone plan, a new credit card or an auto loan before applying for a mortgage isn't a good idea. It will affect your debt ratio and your FICO score. Don't apply for additional credit until you have loan approval and you have confirmation that it funded. Occasionally lenders will order an updated copy of your report prior to funding your loan. If your FICO score dropped or your debt ratios increased, a lender can turn down your loan, even if it was previously approved.
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