Things You Shouldn’t do Before You Buy a House
Home buyers think that the process of buying a house is easy when there’s a real estate agent involved, and although it’s true, making a major purchase like buying a house can account for huge responsibilities other than paying bills.
Getting a home of one’s own is a dream many people have. Once they decide to buy a house, the first thing they do is make an offer on the property.
This is just one step in the process, and there are many things you should not do before buying a house that could end up costing you money or time if done improperly.
Let’s discuss what these mistakes are so that you can avoid them!
Don’t Disrupt Your Credit Score.
It is most important to have a good credit score when applying for a loan. You need to keep your credit score intact by avoiding applying for too many loans or late payments on the debt in order to get the best rate possible.
A mortgage lender will look at your credit report to suss out the likelihood that you will repay the loan. If your credit is poor or there are signs of previous delinquencies, it’s likely that they’ll deny your loan application for a home loan. A mortgage lender needs to make sure that the borrower is able to pay their mortgage payment each month.
These are some other ways to avoid damaging your credit score:
Do not close any accounts if they have a low balance since this will negatively affect your credit utilization ratio and make you look riskier as a borrower.
Do not apply for any more loans if you don’t need them, and do your best to pay off all of the debt with a high interest rate.
If you are trying to get approved for an FHA loan, make sure you have good credit scores at least one year prior to the application date, or else you’ll have to wait before you can apply again.
Do not open new credit cards or even charge on existing accounts if your goal is to get the best rate; this will lower your score and make it less likely that you’ll be approved for an unsecured loan, which is typically better interest rates than secured loans.
Don’t Open a New Line of Credit.
Opening a new line of credit might result in your loan application being denied even if it’s secured. Open an account with the best possible credit score, and keep it open. And don’t open another one when you’re in the process of a home purchase.
Having been pre-approved for a mortgage doesn’t guarantee you a loan. Credit is checked twice before final approval: once during pre-approval and again shortly before closing.
During this time, maintain your credit rating and finances. Ideally, new lines of credit should not be opened, or existing lines should not be closed. Consequently, your credit score will decrease, and your debt-to-income ratio will rise – both important factors that influence a lender’s final decision.
Don’t Miss Bill Payments.
Paying your bills on time can be crucial in making a home purchase. If you’re late on your bill payments, it could lower the amount of credit available to you and affect your score.
Keep your bills paid on time to build a good credit history.
Paying bills like your credit dues on time can significantly affect your loan approval.
Your creditor will report your late payment if it has been 30 days since the payment was due. Your credit score will be negatively affected. And that could greatly affect your chances of getting approval from a mortgage company.
Some credit providers might reject your application if they see a late payment. And you’ll need to pay the overdue fees and any penalties that may be imposed on you by the creditor.
So make sure before you go house hunting, you’ve done the necessary steps to get your bills in place.
Don’t Move Money Around.
When you’re planning to purchase a house, you’ll want to keep your money steady in your bank account. This means you shouldn’t be moving your money around frequently, and if you do, it should be for a good reason.
You don’t want to have your loan pre-approval process disrupted because lenders see that you’re transferring funds from account to account too much. It doesn’t look like an individual who’s financially stable enough to take on a mortgage.
Lenders need to assess your finances if you are able to pay the down payment, closing costs, and monthly mortgage payments before they approve you for a loan.
You should transfer your funds around for the purpose of getting ready to purchase a house. For example, you might want to make sure some money is in your checking account so that it’s easy enough to withdraw and pay off any bills if they come up before the closing date.
Don’t Change Jobs
Keeping your steady income in check means that you also keep your current job and avoid switching jobs just until closing the home.
People who are employed full-time or with a steady income typically have the best chances of getting approved for a home loan.
Suppose you’re considering switching jobs just before closing on your house purchase. If that’s the case, it isn’t the best situation because it creates doubt that you’ll be able to repay the mortgage if your work situation changes.
Although changing jobs won’t necessarily affect your chances for approval, that depends on how significant the changes are in your ability to pay for the loan. If you’re thinking about switching jobs, it’s best to consult with a lender before making any changes.
An underwriter will want to know why you are considering changing employment if your current job provides sufficient income and stability for the mortgage.
If this sounds familiar, then don’t change jobs just yet! You probably don’t want to start a new job and then learn you can’t get approved for the mortgage.
Maybe it’s time to look at your current situation with an underwriter before making any decisions that could jeopardize your chances of getting approved for a home purchase loan!
Don’t Lease or Buy a Car.
It’s not necessarily harmful if you buy a car, but if you do so just before buying your home, then that could pose a problem for your mortgage application.
This is because the bank won’t want to be taking on two big monthly payments in case you have difficulty paying for them both or if one becomes defaulted at some point.
This can affect your debt-to-income ratio since you are essentially adding two monthly payments to your income.
How Mortgage Lenders Evaluate Applicants
The qualifying process for mortgages is often harder for first-time home buyers than for other types of loans.
Home loans typically carry a high loan amount, so lenders assume a large risk. In order to make sure borrowers are well-off, banks look into a buyer’s finances a lot. Typically, these include:
Provide supporting personal data of your income and employment. (This can include bank statements, cash reserves, employment history)
Examine your credit report in detail. (Can include previous loan payments and other debt)
Your credit score will be checked.
An estimate of your debt-to-income ratio.
A solid financial picture is the best way to secure a favorable interest rate when applying for a mortgage. During this period, you must ensure your financial standing remains steady while all the paperwork is being finalized.
What Can Stop You From Buying a House?
If you’re almost at the end of the process of buying a home, a few significant flaws can stop you from completing that process.
If you’re a person who likes to switch jobs here and there, that can be a big indicator of risk for lenders when they’re evaluating a borrower’s ability to repay a loan.
If you also have other debts such as credit cards or student loans, then lenders might think that your capability to pay off a mortgage loan is compromised.
Contact Shield My Deal if You Are Ready to Buy Your Own Home
With us, you can expect excellence throughout the process. We’ll guide you on what to do and what to avoid.
The process of finding a home can be overwhelming, but the good news is that it doesn’t take long to find your perfect place! Let Shield My Deal help you start looking for your dream home today!