Buying a house is an exciting and emotional experience, but at its core it’s just about numbers. Income, debt, credit, interest, and balances all play important roles in whether or not you become a homeowner, or if you have to wait on the sidelines until the numbers look better.
Whether this is your first home or your tenth, you’re likely in tune with your finances since banks won’t give mortgages to just anyone, which is why it’s important to refrain from rash spending during the months leading up to, and during you next home purchase.
To help you avoid any unnecessary setbacks, we’ve compiled a list of things to avoid when buying your next home.
Things to avoid when closing on your new home
1. Avoid Big Purchases (Cars and Furniture)
As great as that new car would look in the driveway, or that sectional would look in the living room of your new home, hit the brakes—now is not the time to be making big purchases!
Even if you know you can afford a new car or furniture, hold off until after the mortgage is approved and you’re all moved in, after all you don’t want to give the bank any additional reasons to deny you your request.
Without getting too technical, lenders take many factors into consideration when determining an applicants eligibility for a mortgage, including recent spending habits, requests for credit and debt-income ratio’s, something that new car or furniture loan is sure to affect.
2. Don’t Spend Your Savings
If you haven’t downloaded our Home Buyer’s guide, now would be a good time to do so. In it you’ll learn all about the costs involved when buying a home, including closing costs, legal fees, property taxes and land transfer tax, all of which could be nicely paid for with that little nest egg you’ve worked so hard to save since college.
In our experience, the one thing new homeowners almost always underestimate is the unexpected costs that come with a home purchase, which is why we suggest that you hold onto your savings instead of squandering it on a new TV or hardwood flooring when the carpet that came with the home is perfectly fine!
3. Don’t Apply for a New Credit Card
As I mentioned earlier, lenders will scrutinize your credit history, including any recent requests for new credit, which is why you should avoid applying for that new points card until you’re moved in and settled.
Even though you might feel short on cash, during the home buying process, a new credit card is not the answer.
4. Don’t Close Any Credit or Bank Accounts
Once again, when applying for a mortgage your credit history is under a microscope, so just play it cool Jack!
Even though you may be offered lower rates by other financial institutions or you may just want to get your finances more organized leading up to your big purchase, now is not the time, just wait until after closing.
Exhibiting financial stability goes a long way with lenders, especially mortgage lenders, after all they’re signing you up for a 20-30 year loan, so they’ll feel better knowing you don’t bounce around from bank to bank at the first sign of trouble.
5. Don’t Get Behind On Payments
This one’s a no brainer if you’re trying to buy a home! Sure, a credit car company might lend you $1000 if you’ve missed a payment here or there, but no bank in their right mind will lend you hundreds of thousands of dollars if they aren’t 100% sure you’ll be able to repay it.
With that said, for at least 12 months leading up to your application make sure to make all your payments on time! Even if it means eating Rahman noodles until you’ve got that mortgage sorted, so be it! Make your payments in full and on time!
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6. Don’t Switch Jobs
Stability is key when applying for a home loan, both financially and as a sign of good character. For this reason, try to stay employed with the same company throughout the process.
In the off chance that you should be offered a higher paying job at a new company during the application process, keep in mind that more money doesn’t necessarily make you look like a better candidate for a mortgage. Lenders take everything into consideration when determining an applicants eligibility, including risk.
What if it doesn’t work out?
What if you get fired?
What if they realize they didn’t need you after all?
It’s one thing if you’re promoted from within, but an outside promotion to a new company could be seen as a negative on your mortgage application. Staying in the same job that has been providing you with a regular pay check for years, gives them the reassurance they need to lend you the money that you need.
7. Don’t Move Money Without a Paper Trail
Forget about all those mafia flicks you’ve been watching on late night television—a paper trail is a good thing!
Banks treat everyone like a stranger when determining risk, meaning if they see something questionable that you can’t prove is legit, you can forget about them trusting you with their money.
Should the need arise to move money around, be sure to document it accordingly, for just this reason.
Emotions run high during real estate transactions, and it’s easy to get caught up in the moment and not think things through, which is why it’s important to refrain from making any major life changes or any large purchase for the period leading up to you acquiring your new home.
The last thing you want to do is jeopardize your dream by trying to get that new Visa points card, or save a couple hundred bucks on a sofa set at a weekend sale.
By showing restraint, you’ll prove to your mortgage lender that you are stable, reliable and predictable, and therefore an ideal candidate for a mortgage.
And once your closing is complete, let the couch shopping begin!
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