September 29th, 2017 9:32 AM by Jackie A. Graves, President
If you're in the process of buying a home, you've probably
already met with a lender who advised you on what to do and what not to do
during the escrow process. But if you're just getting ready to buy or plan on
doing so in the near future, following a few financial tips can mean the
difference between qualifying...and not, and also getting a decent rate. These
are a few universal "don'ts" that will help you stay on track, even
before you get a lender involved.
Don't take out more credit
If you're thinking you're going to buy a house in a matter of a few months,
forget that new laptop on the Best Buy card, forget that new car, and forget
that Old Navy card. Sure, it's only a $30 pair of pants. But, taking out more
credit can harm your debt-to-income ratios, which can make you look like a
credit risk. And that's not worth it, no matter how cute the pants are.
Don't pay off all your current
lender will tell you specifically what you should pay down and what you should
leave alone, but banks tend to like responsible credit management. In some
cases, that may mean carrying a small balance on one or more cards.
Don't charge up all your cards
to the limit
credit management" does not mean running every available card up to the
limit and/or only making minimum monthly payments. Banks will not look kindly
on this when you go to get approved for a loan.
Be careful with old debts
may think that in order to qualify for a mortgage or get the best possible rate
you have to pull your credit and go back through every single entry to identify
and take care of anything negative. You're right about the first part. Pulling
your credit so you know what you're working with is critical, and financial
experts recommend doing it annually, regardless of what you're planning (or not
planning) to buy. But be careful with old debts. It doesn't hurt to ask a
lender what should and should not be taken care of. But, in general, you'll
in full instead of making settlement arrangements - It's not uncommon for debt
collection companies to send out settlement offers that allow you to settle
debts for less than the total amount. While this can sound tempting, it likely
won't yield the results you're looking for. Yes, it'll stop the harassing phone
calls and persistent letters. But if your goal is to get the debt to disappear
from your credit report, you'll be disappointed.
"When you settle your debt, the activity usually shows up
on your credit report as ‘debt settled' or ‘partial payment' or ‘paid in
settlement.' You can talk to the settlement company about the specific language
they use, but the bottom line is: this is a red flag on your report," said clearpoint.
"FICO doesn't reveal how much your score will drop, exactly, and your
report doesn't indicate how much of the original debt was forgiven; it simply
shows you settled. Either way, it still points to the fact that you may be a
to newer debts - Older debts that are getting close to falling off your report
should be the last thing you pay. "You also want to consider the statute
of limitations on your debt," they said. "Most past debts remain on
your credit report for seven years, so if you're close to the time frame
when the debt falls off, settling it may not make much of a difference.
There's an ethical argument to be made here, but practically, you might just be
settling a debt that was about to disappear anyway."
Be careful with debt consolidation
you have a lot of outstanding debt, are in over your head with credit cards and
store cards, and can only manage the minimum monthly payment on all your
existing loans, you're likely going to have a hard time qualifying for a
mortgage. You may be tempted to lump your debt together into one payment
through a credit consolidation company, but beware the consequences. There may
be startup fees, interest rates on the consolidation loan could skyrocket after
an initial teaser rate expires, and, in some cases, an improvement in credit is
Don't get lax with your
lender will reinforce this, but it bears repeating that even after you've been
prequalified, you need to keep your payments current on your car, your Visa,
etc. Your lender will do a recheck before closing just to make sure nothing has
changed in your credit report, and if you have new issues, it could impact your
Don't move money around
know a story of one homebuyer who almost lost his home because he had stated on
his application that the down payment was coming from a mutual fund account.
Then, two days before closing, he decided to sell a baseball card collection
instead," said HSH.com.
"The loan had to be underwritten all over, his ownership of the
collection, its value and its sale had to be verified, the closing was delayed
and the fees increased."
Don't change jobs before you
buy your home
is a big no-no don't if you're in the process of buying a home or are about to.
Among all the other financial information your lender will be collecting in
consideration of your loan, they will also be asking about your employment
history. You're obviously less likely to be approved if you're unemployed
(unless you're independently wealthy, and, in that case, Congratulations!). A
recent job change may also be problematic if the bank is feeling jumpy about
your job security.
By Jaymi Naciri - To view the original article click here