Buying a home can be a long and confusing process. Before you even begin the home buying process, it is important to do your research and determine if you are ready to buy a new home. Once you determine you are in fact ready to buy, it is common for people to provide insight into their own home buying experiences. Most people will be quick to tell you all the tips and tricks for what you should be sure to do. Few can tell you the important things you want to ensure you do not do before you close on a home. That is why we compiled a list of the top ten things you should be sure to avoid before you close.
1. Don’t change jobs or become self- employed
Changing jobs can affect your loan approval which will ultimately affect your ability to close on a home. Employment history and income are big factors for a mortgage lender because they relate to your ability to make mortgage payments. If you are considering taking a new job, talk to your mortgage lender as soon as possible to determine if the job change will have a negative impact on your loan approval.
2. Don’t buy a vehicle
No matter the type of car you’re looking at buying, an auto loan can affect your debt-to-income ratio. This is something that mortgage lenders will highly consider when reviewing your payment history. Purchasing a new vehicle also creates a hard inquiry and a new account on your credit. These will negatively impact your credit score. So, if you are looking to buy a home, try to hold off on making any auto purchases until after you close.
3. Don’t use credit cards or let payments fall behind
When you are in the process of buying a house, it is important to keep tabs on your credit. Overuse of credit cards can quickly pile up debt which could affect your loan. Late payments also have a negative effect on loans. Ensure that your credit card use stays relatively low, and make sure to pay off your credit card debt on time to avoid negative impacts.
4. Don’t spend the money you saved for a downpayment
Buying a home can be a long, tedious process. Many people spend a significant amount of time saving money for the down payment. As the period surrounding the home buying process extends, many may feel stretched financially and consider dipping into the down payment funds. By spending your down payment money, you are affecting the amount you can be approved for on your home loan.
5. Don’t buy furniture before you close on the house
A common mistake that home buyers will make before closing on their new home is buying furniture. Similar to buying a vehicle, purchasing furniture before you close on a home can negatively impact your debt to income ratio. This is because furniture is a high ticket item that can create an inquiry and account on your credit. It’s always a good idea to wait until after you close on your new home before you purchase any new furniture.
6. Don’t originate any new inquiries on your credit report
Your credit score is an important factor lenders consider when you begin the process of purchasing a home. In the years and months leading up to when you want to buy, it is important to be sure that you are working on improving your credit score. Newer credit inquiries create high risk for lenders. One additional inquiry could cause one of the following consequences:
- Increase debt to income ratio
- Create more required documentation
- Lower credit score
- A worse rate
- Denied mortgage
OVM Financial further explains inquiries, the difference between hard and soft inquiries, and how they can affect your home buying process.
7. Don’t make any large deposits into your bank account
During any other point in time, having a large deposit in your bank account would give many people a reason to celebrate. However, when you are in the process of buying a home and awaiting mortgage loan approval, you want to try to avoid receiving any large deposits. A large deposit would be any amount that is “out of the norm” of your banking history. If you do receive a large deposit, it does not necessarily mean you will automatically be denied your loan. You just have to be able to prove where the funds originated from.
8. Don’t change bank accounts
There are multiple documents that mortgage lenders need to review your loan application before you can purchase your home. One set of documents includes your bank statements for both checking and savings accounts. If you change bank accounts, you will have to provide a whole new set of documents with your new bank. Before you can provide this documentation, your funds will have to be seasoned, or in the account for a certain length of time, which will ultimately push back your loan approval and your purchase.
9. Don’t co-sign for anyone
Cosigning essentially means you obligate yourself financially if the other person cannot make a payment. Any late or missed payments will affect your credit score and ultimately your chances of being approved for a home loan. A missed or late payment would also affect your debt-to-income ratio. While you may want to help out a friend or family member, if you plan on closing on a home in the foreseeable future, it is best to wait until after the closing to cosign.
10. Don’t purchase anything until after closing
Any purchase can ultimately affect your loan approval. Your purchases will ultimately be a part of your credit and banking history which your mortgage lender will have extensive details on. If the numbers are not lining up, your mortgage loan could be denied. If you are planning on buying a home, it is important that you don’t make any purchases until after closing.
At Holland Homes, we aim to deliver a seamless sales experience. Our sales team thoroughly understands real estate and wants to help you understand the entire home buying process. Contact us today to learn more about our available listings.