Buying your first home? Maybe you have done this before and just assume lending is pretty straight forward? Avoid these common mistakes that can blindside a buyers mortgage and closing day!
Lending is a complicated business with a number of moving parts and many rules that can make the difference between a happy closing day or no home at all. There are so many things that can effect your loan process and your road to a successful closing day. Here are just a few of the most common mistakes that buyers make.
Here are a few more things to avoid so that you can keep loan and purchase on the rails through to closing day!
Big Purchases on Credit. It is tempting to buy the furniture for your new home or a new car for the garage before the sale closes. Take care if you are making these purchases on credit. Large purchases on credit can have a major impact on your credit profile which effects your mortgage application. It’s a better plan to wait until after closing or pay cash for these transactions or you may be putting that furniture in a different living room than you originally picked them out for.
No 90-Day Same as Cash! Many times you may be tempted to make a furniture or appliance purchase for your new home. Often these can be done now and no payments for 90 days or even longer. Don’t be fooled. These purchases still affect your credit and can destroy your loan process. Remember, just a small change in your credit picture might be just enough to keep your loan from moving forward.
IRS, State and Local Liens. You’ve heard the old saying “Death and Taxes”. Back taxes and liens can derail your attempts to get financing for a mortgage so be sure to have your books in order before filing your loan application. There are a number of searches done against your social security number just before closing and this is where liens against you sometimes appear, even though they are NOT on your credit report.
Changing jobs, become self-employed or quitting a job. Changing jobs will change the qualification basis and if you move into a different line of work or take a lower paying job, this may disqualify you from moving forward with your purchase. Also going from an employee to self employed changes everything. Of course you need a job so don’t quit yours.
Don’t Spend your Money! Especially your funds set aside in your bank account for your closing day. Often these funds need to be on deposit for a couple of months to be “seasoned” and allowable for your purchase. If you spend it, you may have problems having new funds seasoned in time for your closing day. Also many times your loan will require a certain amount of “reserve funds” in your account and trying to get those funds into your account at the last minute can be catastrophic.
Large Deposits. You would think more money is a good thing, right? But large deposits are handled differently and require sourcing, which can get complicated. Always ask your loan officer before you make a large deposit.
Changing Bank Accounts. You will not want to change bank accounts during the loan process. Making a move like this will change your financial picture and quite possibly slow down the process or cause your loan to be denied.
Never Co-sign. Don’t do this for anyone during the loan process. Co-signing will not only change your credit picture, it will also change your debt ratio. The smallest change in debt ratio may ruin your chances for a loan approval.
Late Payments, Missed Payments. Credit Inquiries. Of course pay your creditors on time and avoid having your credit report pulled during the loan process. Late or missed payments will decrease your credit score and so will excessive credit report inquires. Sometimes just a few points on your credit score make the difference between a happy closing day or no closing day at all.
Overpaying. Before your bank will approve your mortgage they will appraise the home you are purchasing. If they feel you are overpaying they are likely to decline your mortgage application. If you find yourself in this situation consult with your agent on renegotiating your offer to be more in line with the bank’s appraised value.
Purchasing too close to Foreclosure. If you are making an offer on a house which is facing foreclosure be sure to have a closing date set before the foreclosure date. Have your agent work with the lender to structure closing before the house goes back to the bank and into foreclosure
Comprehensive Loss Underwriting Exchange (CLUE). CLUE is a database of insurance claims for both people and property. Your home insurance rates are determined by the information about you and the property you plan to purchase which is contained in this report. Past claims for water damage, falling trees and even dog bites from present and past owners can multiply your insurance rates. Consult your agent about the CLUE report for your future home as soon as possible once your home purchase offer is accepted.
As always, work closely with your lender. Share everything with your loan officer so they can navigate through the process and guide you through the rough spots and onto closing. It’s better to know about potential issues up front and not be surprised just before closing with bad news. How a great loan officer helps you! and Other missteps that keep you from closing.
If you are just starting the process and want to know more about how the buying process works, connect with us. We will be happy to meet with you and walk you through the buying process, help you find a lender and get you on the path to home ownership.
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