There are many things you should not do before purchasing a home, or you may compromise your chances of getting a mortgage at best, or even be refused a mortgage at worst. Take the tips below seriously, because many people have ignored them and were sorry they did.
You have found your dream home, so what comes next? What should you do and not do to make sure you don’t let it slip out of your grasp? This is easily done, even if you have the finance and wherewithal to purchase it and to maintain your monthly repayments. Your main job is to persuade the lender that they can trust you to maintain your payments faithfully until completion – and that could be as far as 30 years away!
Here are five things that you must definitely avoid when purchasing a home:
Do Not Change Your Job
You should have a record of stable employment, and if your new dream job becomes available at the same time as your dream home, you will have a choice to make. Your lender wants to see that you are in stable employment so changing employment while you are in the process of buying a home can create complications.
The home buying process becomes even more complicated if you have become self-employed! Your lender may ask for your last 5 years of employment history, and if you have had several jobs, or have become self-employed you may be considered a higher risk by your lender. Even if you have changed jobs for more money, it is possible that you may be refused a mortgage if you have not been in the same job for at least 3 months so that you are past any ‘trial’ or ‘probationary’ period when you may be released.
Do Not Overspend
You lender works from a ratio known as the debt to income ratio (DTI), based upon how much you owe as a percentage of how much you earn. If you purchase high ticket items using a credit card or loan, you increase your DTI. If this exceeds 36%, including your mortgage and home insurance, then you will likely be refused a loan to buy your home. Keep that new leather sectional until you actually have the mortgage and the keys, not before!
Do Not Apply For Credit
If you open any new credit accounts shortly before your mortgage applications, you could be regarded as a bad risk. This is because you have little or no credit history of repayments for this line of credit. Also, did you know that credit searches on your records with Equifax, Experian and TransUnion can adversely affect your credit score? Even if you agree to act as guarantor for another person, your records will be searched and your mortgage application could suffer because of it.
Do Not Deposit Large Sums into your Bank Account
The mortgage underwriter will be suspicious of any large sums paid into your bank account shortly before or during your application. Anything over $500 will be queried. It is known for sellers to pay prospective buyers cash to pay the required deposit, and increase the asking price by the same amount. This enables the buyer to pay a deposit they would otherwise be unable to raise so the seller can sell the house – and is 100% illegal! Your bank account will be scrutinized when you apply for a mortgage.
Keep Your Finances Stable
Prospective lenders want stability in everything: employment, income, outgoings and bank accounts. Try to keep everything stable before purchasing a home, meaning no excessive outgoings for around three months prior to your application, no excessive deposits, no new credit cards and certainly no changes of bank account or banks. You have a better chance of being approved for a mortgage if your finances having been running smoothly.
If you ignore any one of these five when purchasing a home, then your application for a mortgage will be compromised. You may be asked to show evidence of financial stability for a period before reapplying. If you have big ideas for a new job, a new car or other major purchases or applying for that fabulous new credit card or even a store card, leave it until you have the keys to your new home – then you can do what you like (within reason!).