USDA Loan Application Mistakes To Avoid: 5 Things "Not To-Do" for USDA Loan Approval

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USDA Loan Application Mistakes To Avoid: 5 Things "Not To-Do" for USDA Loan Approval in Florida, Texas, Tennessee, and Alabama.

Last week, we covered five essential steps to take during the USDA loan application. Today, we’re switching gears to focus on what not to do when seeking USDA mortgage approval.

This video serves as an important reminder of how delicate the loan approval process can be. We'll share critical tips to help you avoid missteps that could derail your progress and keep your application on track to closing.

Before we dive in, don’t forget to download our USDA Blueprint for Success using the link below. This free resource is a step-by-step guide designed to help both homebuyers and Realtors navigate the USDA loan process with confidence.

What Not To Do During Your USDA Loan Application:
Benjamin Franklin once said, “An ounce of prevention is worth a pound of cure”—and that advice rings especially true during the USDA mortgage process. Avoiding simple mistakes can make all the difference between an approval and a denial.

Here are some of the most common pitfalls to avoid:
1. Do Not Open or Apply for New Credit
Tempting pre-approved credit offers are everywhere these days—but resist the urge to apply for new credit while your loan is in process. New credit accounts, whether for furniture, a car, or a credit card, can lower your credit score and increase your debt-to-income ratio. Even credit inquiries alone may negatively impact your approval odds. Stay proactive and avoid any new financial obligations until after closing.

2. Be Cautious When Paying Off Negative Credit Accounts
It may seem logical to pay off old collections or charged-off accounts to help your loan approval—but this could backfire. In some cases, making a payment on a dormant negative account can refresh its reporting date, potentially lowering your credit score. Everyone’s credit profile is unique, so consult with your lender before taking any action. If a payoff is required, the Metroplex team can help you evaluate the pros and cons.

3. Avoid Increasing Credit Card Balances
Keeping your credit card balances low relative to your credit limits is key to maintaining strong credit scores. High balances not only reduce your score but also increase your monthly minimum payments, which can hurt your debt-to-income ratio. Responsible spending habits can go a long way in supporting your USDA loan approval.

4. Do Not Close Credit Card Accounts
Closing a credit card might seem like a good idea, but it can actually damage your credit. By reducing your available credit, you increase your credit utilization ratio—a major factor in determining your score. Unless advised by your lender, keep your accounts open and maintain responsible usage.

5. Do Not Make Unverified Bank Deposits
USDA underwriting guidelines require that all bank deposits be verified, including the source and history—a process known as “source and seasoning.” Depositing cash into your account without documentation may seem like a good way to strengthen your file, but if the source can’t be verified, it can actually harm your loan approval. Always consult your lender before making non-payroll or unusual deposits.

Final Thoughts
While this list isn’t exhaustive, avoiding these common mistakes can make a big difference in your USDA loan journey. Staying informed and proactive is the best way to ensure a smooth path to closing.

If you have questions or if your current loan is experiencing issues, don’t hesitate to reach out. Since founding the company in 2001, we’ve helped countless families navigate the mortgage process—and we’re here to help you too!

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