So, you are thinking of becoming a home owner. That’s great! Did you know that the actions you take today, may have an affect on the mortgage you apply for in three or even six months away? It’s very important to get your finances in order and to ensure a smooth ride, there are things that you should NOT do BEFORE buying a home:
1) Thou shall not change jobs, become self-employed or quit your job ~ it’s always best to try to stay in your current job until the house is yours. Lenders like to see consistency. Changing jobs, quitting or becoming self-employed are all bad moves. Your source of income is very important to a lender.
2) Thou shall not buy a car, truck or van unless you plan to live in it ~ whether buying a car or getting a line of credit for furniture, a large purchase can increase your debt to income ratio. This will reduce the amount of monthly income available for your mortgage payment and the bank may decide that you can not afford the home.
3) Thou shall not use credit cards excessively or let current accounts fall behind ~ if you have significant credit card debt or have a bad credit history, it will definitely hurt your chances of qualifying for a home loan. Make sure your bills are paid on time.
4) Thou shall not spend money you have set aside for closing ~ lenders want to see stability in your financial history – that includes bank accounts. When looking to purchase a home, keep in mind that there are other expenses and closing costs involved. You may have moving fees, want to do some renovations, etc. Be sure to set aside this money and do not touch it!
5) Thou shall not omit debts or liabilities from your loan application ~ be sure to disclose all your debts/liabilities. The mortgage underwriting process is extremely thorough and all your financial history will be looked at before they approve you for the loan. If you omit information, it will make you look like more of a credit risk to the lender. Remember, honesty is the best policy.
6) Thou shall not buy furniture on credit ~ we’ve all been tempted by the 0% interest for 18 months deal. Furniture and appliance stores often have this special offer dangling over your head. Don’t fall for it, until AFTER the home is yours. Don’t be tempted by credit offers or payment plans. Those debits can affect your chances of approving for your mortgage. What good is a new sofa with no home to put it in?
7) Thou shall not originate any inquiries into your credit ~ if you find a site that offers you free credit score checks – don’t do it, this may hurt your credit rating.
8) Thou shall not make large deposits without checking with your loan officer ~ Making large deposits into your bank account while applying for a mortgage, may look suspicious. Be sure to check with your loan officer BEFORE making any large deposits, no matter where the money is coming from. Your loan officer is there to help you get your loan approval and they will guide you and help you make the right decisions.
9) Thou shall not change bank accounts ~ You can hurt your chances of getting your mortgage approval by switching banks before or during the mortgage loan approval process. Lenders want to see a strong financial history and that you have stability.
10) Thou shall not co-sign for a loan with anyone ~ whatever you do, try to avoid having a co-signer for your loan. If you must, make sure you discuss this with your loan officer to help you make a clear decision.
The home buying process can be frustrating and fun at the same time. It will definitely pay to be prepared and informed before applying for a mortgage. Before you start looking for your dream home, be sure to get your preapproval. Good luck!