Posted by Dawn Griffin
6 Financial Pitfalls to Avoid Before a Home Purchase
In the pursuit of homeownership, careful financial planning is crucial to ensure a smooth and successful home-buying journey. Before taking the significant step of purchasing a home, it’s essential to avoid certain financial pitfalls that could jeopardize your ability to secure a mortgage and maintain financial stability. In this article, we’ll explore six key things you should steer clear of with your finances before diving into the real estate market. By understanding and sidestepping these common mistakes, you can position yourself for a more secure and confident home purchase experience.
1. Don’t Deposit Large Sums of Cash
Lenders need to source your money, and cash isn’t easily traceable. Before you deposit any cash into your accounts, discuss the proper way to document your transactions with your loan officer.
2. Don’t Make Any Large Purchases
It’s not just home-related purchases that could disqualify you from your loan. Any large purchases can be red flags for lenders. People with new debt have higher debt-to-income ratios (how much debt you have compared to your monthly income). Since higher ratios make for riskier loans, borrowers may no longer qualify for their mortgage. Resist the temptation to make any large purchases, even for furniture or appliances.
3. Don’t Cosign Loans for Anyone
When you cosign for a loan, you’re making yourself accountable for that loan’s success and repayment. With that obligation comes higher debt-to-income ratios as well. Even if you promise you won’t be the one making the payments, your lender will have to count them against you.
4. Don’t Switch Bank Accounts
Lenders need to source and track your assets. That task is much easier when there’s consistency among your accounts. Before you transfer any money, speak with your loan officer.
5. Don’t Apply for New Credit
It doesn’t matter whether it’s a new credit card or a new car. When your credit report is run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), it will have an impact on your FICO® score. Lower credit scores can determine your interest rate and possibly even your eligibility for approval.
6. Don’t Close Any Accounts
Many buyers believe having less available credit makes them less risky and more likely to be approved. This isn’t true. A major component of your score is your length and depth of credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both of those parts of your score.
Do Discuss Changes with Your Lender
Be upfront about any changes that occur or you’re expecting to occur when talking with your lender. Blips in income, assets, or credit should be reviewed and executed in a way that ensures your home loan can still be approved. If your job or employment status has changed recently, share that with your lender as well. Ultimately, it’s best to fully disclose and discuss your intentions with your loan officer before you do anything financial in nature.
By understanding and sidestepping these common mistakes, you can position yourself for a more secure and confident home purchase experience. Need an agent to help guide you through the homebuying process? Please contact us for a five star experience. We can also recommend several lenders that our clients have had success with.
