Buying a home, or planning to do so soon? Avoid doing these five things that could affect your ability to obtain a home mortgage.
- Don’t get behind on any payments. This includes any existing loans (automobile, personal, etc.), as well as credit card and utility bills. This won’t look good on your credit report and can have mortgage lenders second guessing your approval.
- Avoid buying a new car. We know it can be tempting, but it is never a good idea to buy a car right before you are ready to purchase a home. If you’ve already been pre-approved for a home loan, adding additional debt, like an auto loan, may change the amount of your mortgage pre-approval. In rare cases, it could cause your lender to deny your mortgage all together.
- Don’t change jobs. Stable employment plays a big factor in obtaining a home loan. Changing jobs (or employment setup going from W-2 to 1099, for example) right before you apply for a mortgage may cause the lender to question your ability to pay back the loan. The lender usually will want to see a 2 year history in your field and/or your business, if you have your own, or are an independent contractor.
- Avoid moving large sums of money into or out of your account (especially without a paper trail). This can cause huge red flags for your lender, as they typically want to see that you have had a stable bank account balance for a minimum of two months. If you are receiving a large gift for your purchase, be sure to check with your lender and “season” the funds 2-3 months prior to applying for your mortgage.
- Don’t close any credit card accounts. In most cases, this will not cause a major improvement in your credit score. In fact, in some cases, it can cause further damage to your credit. Closing an account could cause your debt-to-credit ratio to increase, and your credit score to decrease.
The bottom line?
When in the market for a new home, it’s incredibly important to act responsibly in regards to your money and your credit. Whenever possible, put off any major financial moves until several months after you have closed on your new home. And check with your lender or agent first before you do any of the above!