What to Avoid Before Buying

When you are in the market for a new home, there are some things you should avoid doing that could affect your purchasing power and maybe the outcome of your home buying experience.  You must remember that your credit worthiness plays a role in your ability to get approval for that much needed mortgage and you don’t want any major shifts in your credit report during the buying process.

Make no major purchases of any kind
This means it is a poor time to buy a car or any major purchase that would create debt of any kind. This includes buying electronic equipment, furniture, vacations, appliances, and even jewelry.

Don’t move money or change banks
You should keep your money in the places it has been with no shifting. Remember that lenders review your application and look closely at the source of the funds for your down payment and closing costs. You will most likely be asked to provide statements for the last two or three months on all of your bank accounts. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and perhaps even your retirement 401K account. They will see if you have been moving money between your accounts during that time, because of the paper trail of large deposits and withdrawals from one to the other account.

The mortgage underwriter (the person who actually looks at all the financial aspects of your creditworthiness for an approval decision on your loan) will probably require a documentation of all the withdrawals and deposits. You may be required to produce cancelled checks and deposit receipts, which can be annoying and time consuming to gather. They ask this to eliminate potential fraud, so it is a requirement on most loans to completely document the source of all funds. When you move your money around, even if you are consolidating your funds to make it simpler, it can make it more complicated to document. So leave money where it is and don’t choose this time to switch banks.

For some, changing jobs can complicate the loan application.
A job change may help you if the position is in the same line of work and even more if you will be earning a higher salary. If your income is based on hourly wages and you work a straight forty hours a week without over-time, changing jobs should not create any major problems. But if you are a commissioned employee with a substantial portion of your income provided through commissions, you should probably not change jobs right before you buy a house. A change in position creates an uncertainty about your future earnings from commissions.

Remember, if you change jobs and are planning on counting the promised annual bonus into your income when you apply for a loan, you should know that changing employers means that you do not have the two-year track record necessary to count bonuses as income.

Keeping a clear financial picture is key to a simplifying your loan approval process and getting to closing with no major surprises.  Change as little about your finances as possible to show the loan company a stable borrower.

original image courtesy of PeterJBell