Property Ownership: 5 Things to Avoid During Mortgage Application (Travel Hacking Included!)

We are extremely open about how we are able to travel on a tight budget. Our dream to explore Earth is not to be deterred by things such as massive student loans. I have already outlined how we travel hack our way to achieving our adventurous dreams. As much as we love travel hacking, we needed to put a complete stop on our strategies, at least for the time being. While we have proven to ourselves that travel hacking does not negatively affect our credit scores in the long run (how to understand your credit score, here), we also are very aware that it will affect our mortgage application short-term! Travel hacking violates a lot on the “Don’t list” of Mortgage lenders, so in order to understand why we should put travel hacking to a halt, let’s review what NOT to do when applying for a mortgage loan.

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1. Don’t allow tardy payments.

Missing a payment (or worse, adding judgements to a credit report) can surely tank any chances you have of getting a mortgage loan approved. It may seem as if a small missed payment won’t matter much, but your score can lower by more than 100 points if a 30-day late payment occurs on any type of credit account! After spending all this time being reliable and building up good credit, the last thing you want to do is give the lenders any indication that you are a risky borrower.

Be very wary of what you owe. Even missed payments for medical bills or court judgements can weasel their way, uninvited, and interrupt, delay, or all together annihilate the entire mortgage lending process. Even utility bills, parking tickets and library fines can cause damage. I would simply be hyper-aware about all payments that need to be made.

2. Don’t have revolving credit.

As I mentioned in my post, Understanding and Improving Credit Scores, the second most important factor in determining your credit score is how much you owe. Therefore, it is important to avoid revolving credit as much as possible and to pay off all credit cards in full. I mean, you should be doing that anyway, but now isn’t the time to slip. I know that during the entire mortgage process, you are likely thinking of so many other things, however, you want to make sure your credit report is at the forefront of your mind. You can lose as much as 45 points on your overall score just by maxing out one low-limit credit card!

Sometimes, travel hackers have that push to hit minimum spend within a certain time period, but they do so unwisely by spending more on their credit card than they can pay back by the end of the month, thus creating revolving credit. Live below your means, an advice that should be heeded at all times, independent of a mortgage application.

3. Don’t open any new credit cards! (Travel hackers, I am talking to you!)

Here is where travel hackers need to beware. You want to be approved for the mortgage but you also want to snag a credit card offer that’s pretty much handing you 80,000 points FREE. Your fingers are itching to pull the trigger and sending in that online application with just one click more. Don’t do it!

Unless, off course, your okay with risking mortgage approval. But if you are applying for a mortgage in the first place, I am assuming it’s because you don’t have the money to buy your house in cash. AKA, there is no alternative. Other sign-up bonuses will be there in the near future. The mortgage lender may not.

Here’s the thing: Mike and I have not seen our credit scores go down since we started travel hacking in November 2017. Within 6 months, we had opened 5 credit cards between us, and our credit scores have actually increased. They say that your credit score may go down 5 points with each credit card inquiry. If you have a really good credit score (800+), then I would consider your argument that one additional card will not reduce your score to a low enough point that a lender would deny you a mortgage loan. However, I like think we are better off safe than sorry. A recent inquiry will indicate to the lender that you may be a high risk candidate for a loan, let alone multiple recent inquiries. And if I am being honest, every time you do a credit pull, it will give you the top reasons why your score is the way it is. Me and Mike’s top reasons? “Recent Credit Card Inquiries”. Then again, our scores were around the 800’s. You may take that with a grain of salt, a dash of pepper, or however way you want to, but we chose not to open cards during this 45 day period.

The day after you close on the house, feel free to apply for whatever card you want. Just make sure not to max it out on home improvement stuff! (More on that, later.)

4. Don’t close unused accounts. (This too, applies to travel hacking.)

Many people believe in the fallacy that closing accounts will improve their credit score. Some believe in an even worse falsehood, and that is, closing credit accounts will wipe off bad credit history from their credit report. Sadly, no and nope.

The truth is that closing accounts can lower your credit score. Why? Because your credit history makes up a large part of your score. If you close an account that’s been open for ten years, that maybe you haven’t kept active in a long time, that will cut your credit history. Additionally, they will always consider the credit utilization percentage, which is the amount of credit being used versus the amount available. When it comes to closing cards, apply the same practice as with opening cards: wait until after escrow closes!

As far as travel hacking is concerned, there comes a time when credit cards need to be closed to avoid the annual fee. Mike and I were lucky in that we were not even close to any of our one year anniversaries for our credit cards. If you are planning to apply for a mortgage, it would be absolutely wise to plan ahead.

5. Don’t use this time to dispute anything in your credit report.

Which isn’t to say, don’t try to fix any inaccuracies with your score. Right away, if you see an accuracy, the best action to take is to notify your potential lender of the mistake. Current rules dictate that a single dispute under investigation by the credit bureau is enough reason to delay or nix the loan, in order to avoid consumers trying to improve their loan last minute by disputing negative (and possibly, accurate) information.