Like any competitive process, strategy plays a major role in buying a home.
As home prices increase, inventory tightens; and with interest rate increases looming, strategy is as important as ever.
With that said, here are eight things to avoid when you prepare to get pre-approved for a mortgage.
- Don’t apply for a new credit card – Sounds simple enough, but if you think this is a small factor in your credit score, think again. When you apply for a card, it can result in lowering your score. A new credit inquiry can mean the difference between securing a great loan or a good loan. In the long run, every tenth of a percentage point matters.
- Don’t buy a new car – Any big purchase will impact your score. It will increase your debt, open accounts, and also dip into your savings (assuming you used a down payment to finance your new car). Buying a car has too many moving parts, and its best to hold off on this purchase until after you closed on your home.
- Don’t furnish your home before you own it – Just as it’s tempting to go home shopping before you secured a preapproval letter, it may also be tempting to shop for furniture for your new home once your offer is approved. Any purchase during the home-buying process is ill-advised and premature, as it may impact your credit during the crucial time of underwriting. Making larger purchases will also tap into the financial resources you can use for other essential or unexpected costs of buying a home. Don’t put the carriage in front of the horse. Hold off on buying that new sectional until after you’ve got the keys to your dream home.
- Avoid changing jobs – Believe it or not, employment change can delay the home mortgage process. From verifying your new employer and your new salary, a sudden change to this category can bring the process to a halt. Careful planning is a must and a strategic approach to buying a home. If getting a new job is part of your strategy, it’s best to wait several months before taking steps toward homeownership.
- Don’t get behind on payments – Be sure to stay current on your debt obligations. Any negative change on your credit report is a big red flag. Staying current on your bills will allow you to put your best foot forward in the application process and will save you money in the long run. The better your credit, the better the terms of your loan will be.
- Don’t close any credit accounts – When it comes to financial satisfaction, there’s nothing quite like paying off that high-limit credit card. But wait, don’t think this is a green light to close that account. Closing your account can actually be a negative. Building good credit is not just about paying debt off, but also about staying current and active on your accounts.
- Don’t move money without a paper trail – Banks or financial institutions will take a very close look at your financial picture, so make sure all those numbers have a reference point. If, for example, your down payment is coming from another source, it must be documented as such. Also, a sudden cash deposit to your account might catch the attention of your future lender. Bottom line is documentation is needed on all your transactions to ensure the bank that you have the resources to close the deal.
- Don’t spend your savings – Even if you already figured out how much you’re going to use for a down payment, spending your savings now can be a major mistake. A surplus of cash on hand will help you during and after your home purchase. Funds can cover unexpected expenses, moving costs and also give you the confidence and financial flexibility that you’ll need to make the biggest purchase of your life.
If you have any questions, please reach out to us.