9 Things You Shouldn’t Do When Buying a Home
Buying a home is exciting but oh-so terrifying. After all it’s usually one of the biggest financial moves most people ever make. So while there’s lots of opinion on what you SHOULD do, it’s Important not to forget the laundry list of things that you should NOT be doing while trying to buy a home. Seemingly innocent changes or actions can look like big red flags to lenders, and trust me – you don’t want red flags. Make sure you don’t fall into any of these home buying traps and you’ll be on your way to a smooth and successful closing.
1. Don’t miss loan payments.
You must keep your payments current on all your loan accounts, including credit cards and car loans. The lender will look at your credit again before finalizing your mortgage, and if you have missed any payments, it may lead to you losing the loan.
Many buyers mistakenly believe that once the lender issues their loan commitment, they are golden. This is NOT the case!
Lenders have the power to revoke a mortgage commitment and will do so if they see fit. Not too long ago this happened to someone purchasing a home I listed. The buyer was selling and buying a house simultaneously. They closed on their existing home but didn’t make their last mortgage payment.
Unfortunately, this was flagged on their credit report and prevented the buyer from getting the loan for their new purchase.
They had to apply at a new bank under a different program (FHA instead of conventional). Needless to say, this caused their purchase to be delayed, and in the process, they lost thousands of dollars.
2. Avoid changing jobs.
It goes without saying that changing jobs is not something you should do in the middle of purchasing a home! One of the things lenders look closely at is your employment history. They want to be sure that you are financially stable and capable of making your loan payments.
By changing a job before you get your loan, you make yourself less appealing to the lender. Changing situations may cause the lender think you are unstable, or that you won’t have a steady income to keep up with the mortgage. The word stability is something lenders love.
Keep your career change under wraps until after closing takes place.
3. Don’t shift your finances around before getting the loan.
When a lender pre-approves you, the approval is based on the current state of your finances. You want to maintain that state – the one that got you the pre-approval – at all costs. Sometimes buyers make the mistake of shifting their money around to better position themselves, but this is a mistake.
Wait to make any financial changes until after you have gotten your mortgage. If a lender sees you moving money around various accounts, they will ask for an explanation.
You will need to give them a detailed accounting of why you moved your money around. Avoid making this mistake and keep your money in one place before closing.
4. Avoid buying a car.
Without a doubt buying a car while purchasing a home is a common mistake. Doing so is also at the top of the list of what you shouldn’t do before buying a home.
Your loan pre-approval was based on the state of your credit and your debt load at the time of pre-approval before you bought a car. Adding the debt that the car purchase will bring may make you unable to get the loan for your home.
5. Don’t buy furniture or household goods on credit.
Another mistake many home buyers make is using credit to start preparing for their new living arrangements. You may want to start buying furniture and appliances to fill up your new home and make it truly yours, but hold back.
Taking on new debt, even for furniture or other household related items, will change the state of your credit and may throw up a flag for the lender that leads to the loss of your loan approval.
6. Avoid making large deposits into your bank account or making cash deposits.
Money that appears suddenly in your bank account makes lenders uneasy. In fact, they prefer for you to have the money that is going to your down payment in the same account for at least two months.
Lenders refer to the two month period as “seasoning,” and consider it a demonstration of stability and your ability to cover the loan payments. Whenever you make a significant deposit or start doing unusual or unexpected things with your finances before the home purchase, the lender may begin to scrutinize the loan and might back out.
The bank could, in fact, think it’s fishy to see large deposits moving in and out of your account, especially if that hasn’t happened before. Doing as little as possible to make a lender scrutinize your finances.
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7.Avoid lying or stretching the truth on your loan inquiry.
You may have no intention of lying about your finances when you fill out a loan application, but the point needs to be stated regardless. Lying on a loan application is fraud, and if the lender finds out that you mislead in any way, you will almost certainly lose your loan.
Even stretching the truth or making an honest mistake that is inaccurate, can cause you significant problems if the truth is discovered. So be very, very careful that all the information you put down is entirely accurate. Falsifying knowledge is a definite no-no when applying for a mortgage.
8. Don’t let anyone make inquiries into your credit.
Any time you apply for a credit card, a loan or even try to sign up for a new service, like a cell phone service, the company you are working with will probably make a credit inquiry. They do this to determine if you are a safe risk, much as the mortgage lender does.
But when the mortgage company sees that inquiries are being made, it may assume you are trying to take out more debt – even if you aren’t. While one or two queries may not be enough to lose your home loan, there is no reason to take unnecessary risks when you are so close to getting your home.
From MyFICO – “FICO scores are more predictive when they treat loans that commonly involve rate-shopping, such as mortgage, auto, and student loans, differently. For these types of loans, FICO Scores ignore inquiries made in the 30 days before scoring. So, if you find a loan within 30 days, the inquiries won’t affect your scores while you’re rate shopping.”
9. Don’t overextend yourself.
When buying a home, lots of lenders will gladly give you what they think you can afford on paper. What you qualify on paper, however, doesn’t necessarily mean what you’ll be comfortable living on day to day.
Some buyers make the mistake of really overextending themselves. They end up becoming a slave to their home. If going out to a nice dinner from time to time is something you have been accustomed to be more conservative with your house purchase.
Jon Knutson REALTOR
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