December 24th, 2014 7:39 AM by Jackie A. Graves
Cynics may scoff, but getting under contract on the right home
can turn even the most stoic shopper into a bit of a dreamer. From paint colors
to planting a garden, picturing yourself in that property is critical for many
leave a little room for pragmatism. Remember that getting pre-approved for amortgage and even under contract isn’t a
guarantee. That prefix is there for a reason. Loan pre-approval is not loan approval.
have more hurdles to clear before a lender legally commits to funding your home
loan. Buyers who don’t know any better can inadvertently add obstacles to that
path—or even kill the entire deal—between contract and closing day.
missteps can be costlier than others. Here’s a look at five of the worst things
you can do before buying a home.
1. Go Credit-Crazy
almost become cliché in the mortgage industry, but the warning still bears
repeating: Don’t buy a truckload of furniture until after your loan closes. The
prohibition goes beyond sofas and settees—avoid obtaining credit for any major
expense, such as a car, a boat or, yes, a new bedroom set.
careful with even minor expenses. If you absolutely need to obtain new credit
or accrue debt before closing, talk with your loan officer as soon as possible.
payments are going to affect your monthly debt-to-income
ratio (and residual income
on a VA loan), and not in a good way. Hard inquiries on your credit
report could also lower your credit score. That might hurt your interest rate
if you haven’t locked or even knock you out of qualifying range all together.
2. Shuffle Dollars and Cents
will scour your most recent bank statement as part of the pre-approval process.
It’s not like they forget about it after that. They’ll take another look at
your assets and bank records again during the underwriting process.
need to explain any unusual deposits or withdrawals. Lenders will require clear
documentation and a paper trail if you’re putting gift funds toward a down
payment or closing costs. Stuffing a wad of undocumented cash into your account
is going to raise some red flags.
3. Get Behind on Bills
a late payment hit your credit report before closing can devastate your deal.
Payment history comprises about a third of your credit score.
30-day late payment can
clip 60 to 110 points from your credit score. Maybe not a huge deal if you had
an 800 score, right?
But if that 30-day late blemish is a mortgage or rent payment, some lenders
will boot your application altogether. Many will require at least 12
consecutive months of on-time payments to qualify for a home loan.
4. Co-Sign on a Loan
a loan is arguably a bad financial move whenever you make it. But it’s
especially risky during the mortgage lending process. It means you’re
financially liable for someone else’s debt.
that someone else might be the most responsible person on the planet. Lenders
will still need to factor that new monthly obligation into your overall
affordability profile. Adding one more debt to the list could stretch too thin
your debt-to-income ratio and assets.
5. Changes in Employment
goes without saying, but losing your job is going to be a big problem. Even
job-hopping can present some major hurdles. Lenders crave stable, reliable
income that’s likely to continue.
are likely to slam on the brakes if you take a new job in a different field. Or
if you decide to start your own business. Or even if you get a promotion but
see some or all of your income shift to a commission basis.
bottom line: Any change to your employment is significant. Keep your loan
officer in the loop, and ask questions when in doubt. The last thing you want
is to waste time and money on a home loan you’re never going to get.
the mortgage process, it can also be helpful to monitor your credit scores for
changes so you can know whether you need to address any problems. To do that,
you can use a free tool like Credit.com’s
Credit Report Card, which updates your credit scores and an overview
of your credit report every month.
By Chris Birk |
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