Welcome back! We hope you've had a great week and can get out a bit to enjoy this lovely weather! Things are continuing to stay busy around all the ERA First Advantage offices -- gotta love a "hoppin" local market!
This week, we are going to focus on a topic that is not as widely discussed as it should be. We want to share a few things you should avoid once you have gone through the pre-approval process and are ready to buy your new home. Changes in your financial or employment status can really affect your mortgage terms, and lenders really frown upon borrowers who go out and incur debt during the transaction time leading up to closing.We want to make it easy for you! Just follow this guide and be frugal for the time period you're buying your new home. We promise it will be worth it when you close on that dream home!
1. Don’t apply for new credit cards: It may seem like a great idea to apply for a credit card at a home improvement store or a furniture store when you are about to become a homeowner, but applying for credit can lower your credit score. Not only will you lose a few points because of a credit inquiry, but if you are approved for new credit, a lender might worry that you will spend up to your new credit limit and then default on your loan. Wait to make those furniture and home improvement purchases until after closing on your new home.
2. Don’t close any credit accounts: You may be feeling that this is a good time to get your financial state in order by closing unused credit accounts or transferring your debt to a new credit card with lower interest rates. While that’s a smart move financially overall, it’s a bad one for your credit score because you lose points when you have a higher usage of debt compared to your limit on one credit card. Wait until your closing is complete before you make these changes.
3. Don’t move your money around: Your lender will need the most recent bank statements before you go to closing, so if you have any unusual deposits you will need to provide complete documentation of where the money came from. If possible, it’s best to move the cash you will need for your home purchase into one account before you apply for a mortgage.
4. Don’t increase your debts: In addition to your credit score, your debt-to-income ratio is extremely important in a loan approval. If you take on more debt, you could be in danger of going above the acceptable debt-to-income ratio. Again, wait until after you've closed on the house.
5. Don’t skip a payment or make a late payment: One of the most important elements of your credit score is your history of on-time, in-full payments, so don’t get so caught up in your move that you forget to keep up with paying basic bills. Keep a list of payment dates for all your bills and check them off as they're paid!
6. Don’t buy a car: You may be feeling that a new car would be a nice addition to the driveway of your new home. Resist that feeling!! Even if you can easily afford payments on a new car, the depletion of your savings or the addition of a new car loan could derail your mortgage application. Get that new car once you actually have the new driveway.
7. Don’t change jobs if you can help it: While a job change could mean a raise or a path to a better future, it could also delay your transaction. Your lender needs to verify employment and will need pay stubs to prove your new income before your loan can go to settlement. If at all possible, stay put throughout the transaction process and make the switch after you've closed and settled in. Promotions or moves within your company don't count in this situation -- if you get promoted, we will be the first to offer our congratulations!
8. Don’t spend your savings: You’ll need cash on hand for earnest money, inspection costs, and for your down payment and closing costs. Your lender may even verify your cash reserves one more time just before closing, so make sure the funds stay in place. It's best to just be as frugal as possible throughout the time you're in the buying process. It will give you peace of mind and ensure the process runs as smoothly as possible.
We hope this information helps as you are navigating the home buying process. Remember to ask your ERA First Advantage agent and lender lots of questions! We are all here to help and will be happy to do whatever we can to give you the real estate experience.