Common Buying Mistakes

Top 10 Mistakes to Avoid Before Purchasing a Home

By SaleCore Elite

Buying a home can be an exciting, yet nerve-wracking experience, especially if you are a first-time homebuyer. Because a home purchase is not complete until the keys are in-hand, if you’re not careful in the days and weeks leading up to your closing, you could actually put your sale in jeopardy, or lose the home altogether. Many buyers tend to make costly mistakes during the mortgage and home-buying processes. While some of these mistakes may seem insignificant, they can divert your closing and create considerable headaches. Avoid these common home-buying mistakes and keep the stress to a minimum.

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1. Avoid Employment Changes

While changing jobs may benefit your career, it very well may complicate or even sabotage your mortgage approval. Lenders look closely at employment history, ensuring that you have financial stability and are capable of making your loan payments. If you were pre-approved for a mortgage based on a certain income and job, any changes in the interim before closing can be a potential red flag and delay or even derail your closing. By changing employment before you get your loan, you make yourself less appealing to the lender. Whenever possible, lenders recommend waiting to switch jobs until after your loan closes. If that’s not feasible, tell your lender right away. If you plan to change jobs, but can wait until after your loan closes, keep your move under wraps until after the closing takes place.

2. Avoid Late Payments

Make sure you’re keeping up with all your loan, credit card, and debt payments during the closing process. Lenders have the power to revoke a mortgage commitment at any time, and any late payments can decrease your credit score and your chances of getting that home. If you’re overwhelmed, take some time to set up auto payments through your bank, ensuring that you don’t miss a single payment. The lender will continue to look at your credit again and again before finalizing your mortgage, and any missed payments may lead to the loss of the loan.

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3. Avoid Moving Money Around

Your loan pre-approval is based on the current state of your finances, so maintaining that state is extremely important. Some buyers make the mistake of shifting their money around to better position themselves. For example, debt consolidation offers can be tempting, making it possible for you to bring all your debt under one umbrella payment. But there are often hidden fees and interest rates that can increase dramatically without warning. Consolidation may not improve your credit in the way that you expect, so be sure to read all the fine print. Avoid making this mistake and wait to make any financial changes until after closing.

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4. Avoid Large Deposits into Your Account

Another big mistake is making large deposits or withdrawals from your bank accounts or other assets. If lenders suddenly see unsourced money coming in or going out, it might look like you got a loan, which would impact your debt-to-income ratio. Lenders aren’t concerned about transparent deposits, such as a bonus from your employer or your IRS tax refund. But if a friend or family member wires you money or you receive business income in your personal account, a lender will demand proof to verify that the deposit isn’t a disguised loan. Expect a lender to ask for a bill of sale (from a sold item), a canceled check, or a pay stub. Money that suddenly appears in your bank account makes lenders uneasy. Whenever you make a significant deposit or start doing unusual or unexpected things with your finances before the home purchase, the lender may begin to scrutinize the loan and might back out.

5. Avoid New Banking Institutions or Opening (or Closing) Lines of Credit

Just like maintaining your employment and finances, your banking history is also part of the equation that leads to your loan approval. Changing banking institutions before getting your loan can be extremely disruptive to the loan process. In addition, your credit score needs to remain stable, meaning that you want to avoid opening new lines of credit or closing existing lines of credit at all costs. Opening new lines of credit can make your FICO score drop and increase your debt-to-income ratio, both of which are key reasons a lender can deny final approval. And while it’s great to pay off a credit card account or loan before you close on your home, closing the account removes that credit history from your report. Length of credit is one of the key factors credit reporting bureaus use to generate your credit score. Instead, leave the account open and active, but don’t use it until after closing. However, some credit card companies may close your account for long-term inactivity, which can also negatively impact your credit. Keep accounts active by making small purchases that you pay off immediately and in full every month.

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6. Avoid Making Big-Ticket Purchases

Big-ticket purchases (such as cars, furniture, and appliances) deplete your funds and make you appear less financially responsible, both reasons that can force a lender to rethink your application. Buying a car while also purchasing a home is a common mistake, and doing so is at the top of the list of what you shouldn’t do before buying a home.

Another mistake many homebuyers make is using existing credit to start preparing for their new living arrangements. You may want to start buying furniture and appliances to fill up your new home and make it yours, but hold back. Taking on new debt, even for furniture or other household-related items, will change the state of your credit and may raise a red flag for the lender that leads to the loss of your loan approval. Just as opening or closing lines of credit can ding your score, so can running up existing accounts. Again, keep your credit and finances stable until you close on your home. Use cash instead, or better yet, delay buying new furniture, appliances or accessories until after closing. You will also want to get a sense of how your budget will handle your new homeownership costs. You might want to wait a few months before adding more monthly payments for big purchases to the mix.

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7. Avoid Credit Inquiries

Any time you apply for a credit card, a loan or even try to sign up for a new service, such as a cell phone service, the company you are working with will most likely make a credit inquiry. They do this to determine if you are a safe risk, much as the mortgage lender does. But when the mortgage company sees that inquiries are being made, they may assume you are trying to take out more debt, even if you aren’t. While one or two inquiries may not be enough to lose your home loan, there is no reason to take unnecessary risks.

8. Avoid Co-Signing for Anyone

When you co-sign on a loan, you are obligating yourself financially. It does not matter that you are not the primary person on the loan. If the lender is unable to collect from the primary loan holder, they will look to you as the co-signer to pay off the loan. Home lenders are therefore disapproving of any applicant that decides to co-sign. As with all the other points listed above, you need to focus on keeping your credit and financial situation stable and constant until you have closed on the house. No matter how badly you may want to help out a friend or family member, postpone co-signing until you have the money for your home purchase.

9. Avoid Spending the Funds for Your Closing Costs

For many homebuyers, the period surrounding the home purchase is one of financial scarcity. Money may be tight, which can make the money you saved to cover closing costs tempting, but avoid spending it. The last thing you want is to be unable to cover closing costs when it is finally time to get your new home. Stay strong and avoid spending it if you can help it.

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10. Avoid Being Disorganized

Documentation errors always cause delays in a closing, but missing paperwork can stop it altogether. Keep all of your documents, bank statements, W-2s, deposit records, tax returns, pay stubs, etc. organized and up-to-date. Make sure to respond quickly to any requests for additional information when your lender requests it to keep the ball rolling at all times. There are a lot of moving parts when you’re buying a home, so be sure you are organized and stay on track to ensure a smooth transaction.

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