What Not to Do Before Buying a Home
Most first-time home buyers are surprised to learn just how much can go wrong within the seemingly small steps between mortgage pre-approval and closing. What could possibly happen after a lender pre-approves your accepted offer on that dream home? In a word: plenty.
Mortgage mistakes happen. Closing on your next home without a hitch means protecting yourself and the purchase from the pitfalls. The real estate pros at Team Rita are here with the top things not to do before buying a home to help you create your Home Loan To-Don’t List.
Don’t disrupt your credit score.
A credit report comes standard with the mortgage loan application process. If you stumble upon errors, resist the urge to dispute them until after closing. “Hard inquires”—the industry term for when a business runs your credit—can limit your access to a mortgage loan by giving you an artificially high credit score.
Instead, wait until after closing to dispute credit issues. (The same goes for cancelling cards and paying off debt, which both include hidden fees and interest rates that increase dramatically without warning.)
The exception to the credit score dispute rule is tackling issues before you even begin the home buying journey. If your goal is to buy a home over the next few months, feel free to iron out the errors now to start the process with your best credit foot forward.
Don’t open a new line of credit.
Expect no shortage of new expenses after you buy a home. From filling your living and dining room with furniture to painting the bathroom and bedroom walls, the temptation to hop in the car and head to IKEA or Home Depot can hit you in the first few days of living in your new house. And since you just signed on for another thirty years of monthly mortgage payments, that retail store credit card can call your name.
However, opening a new credit card or extending an existing line of credit before buying a home raises red flags for mortgage lenders. Taking on even just a small amount of new debt can disrupt your debt-to-income ratio—a magic number in mortgage lending—and give lenders a reason to disqualify you for a loan.
Don’t miss bill payments.
Missing bill payments is never a good idea. And it’s an even worse idea before buying a home. (It’s also a bad idea after securing a loan because the lender can revoke the commitment.)
The stress alone from the home buying process is enough to make you miss a bill payment. And if it’s a mortgage payment, then you could be ineligible for a new mortgage loan for a year or more.
Missing a utility bill, car payment, or any other bill before buying a home—even months before you apply—could also disqualify you for a loan by lowering your credit score.
A big enough change in your credit score—even if your score is high enough to secure a loan—could prompt a new approval that delays the home buying process.
Don’t move money around.
Make a conscious effort to delay any large transfers, deposits, or withdrawals until after you close on a home. Lenders approve or deny loans based on the current state of your finances. The best thing you can do once you get pre-approval is maintain that exact state by not moving money around. Move anything more than $500 and lenders will ask for a written letter documenting the source.
Lenders search financial statements for signals, especially loans the borrower must pay back. For monetary gifts, consider waiting until after you close on the home to deposit the amount—or get a letter from the gift-giver stating you won’t need to pay back the amount.
Even after final loan approval, wait to move around money for closing costs until you confirm every financial component with the lender.
Don’t change jobs.
In everyday life, change is a good thing. In mortgages, change—even good change—can set you back.
Lenders carefully review your employment history for signs of financial stability and your ability to make loan payments. Changes in job status raise red flags, especially ones that indicate a move down the corporate ladder such as switching from full-time to part-time, salary to commission, or employee to contractor.
Changes signaling a climb up the corporate ladder are less likely to impact your ability to close. However, stay safe by consulting with your lender before you change jobs. As a rule of thumb, keep your big job move under wraps until after closing, even if you are switching from part-time to full-time or taking on a new, higher role at the same company.
Don’t lease or buy a car.
You see a new car as a luxury. A lender sees it as more debt. Even a new car with a great, affordable interest rate can swing your debt-to-income ratio in a big enough way to delay the process of buying a home.
Don’t change banks.
In the column right next to your job and financial history is your banking history—and it’s just as big a part of the equation lenders use to pre-approve your mortgage loan. Change banks in the middle of the process and you can disrupt the loan approval process, leading to delays.
Don’t co-sign for anyone.
Co-signing a loan for a family member or friend carries a financial obligation where a lender unable to get money from the primary person comes looking for you.
Home lenders know all about the co-signer’s dilemma and most will hesitate to approve a mortgage loan for someone in that position. The end goal for co-signing is the same as with your credit and financial situation, which is to keep them stable and constant until you close on the home.
Buy a home with Team Rita on your side.
Ready to buy a home on Long Island? Our real estate agents are here to help with expert advice, practical knowledge, and real-world experience from both sides of the real estate transaction. Become a client and discover the reason Team Rita ranks as the #1 RE/MAX Team on Long Island.