You’ve been saving up for a down payment. You’ve researched home prices. You’ve worked through your budget, checked it twice.
Good job – you’ve done some of the things you’re supposed to do when preparing for the home-buying process. But wait! Have you considered the things you’re not supposed to do before you walk into a bank and apply for a home loan?
Because, the things you shouldn’t do are just as important as the things that you should do.
With that in mind, here are five things you should not do right before applying for a home loan:
Don’t apply for a new loan or make any large purchases.
Avoid obtaining credit for any major expense, like a car, a boat or, yes, a new bedroom set,” says credit.com.1 It increases your debt load, and subsequently, your debt-to-income ratio – how much debt you’re paying off compared to how much money you’re making.
Don’t add significant debt to your credit cards. And don’t close them, either.
Lenders like a debt-to-income ratio of 30 percent or less. For example, if you have three credit cards with credit limits totaling $10,000 and balances of $2,000, your ratio is 20 percent. If you then close an unused credit card with a limit of $6,000, your ratio just increased to 50 percent – “and that’s a bad thing to a mortgage lender,” says realfx.com.2
Don’t switch jobs.
Mortgage lenders want to see a steady employment history. In many cases, they will require steady employment for at least the past two years. “If you make a major career change, or if your income decreases from your previous position, you could hit some snags during the underwriting process,” says homebuyinginstitute.com.3
Don’t make big deposits.
Your relatives can help you pay for your down payment, but there are rules related to down payment gifts, says smartasset.com. “You can’t deposit the money into your account without properly documenting it. Generally, making a large deposit into your bank account prior to visiting a mortgage lender won’t look good. Lenders normally want to see that you have plenty of money in your account that’s been there for at least two months.”4
Don’t miss payments.
This relates to your credit score, since missing payments or making late payments can negatively affect your score. And credit scores are a big piece to the home loan process for lenders. If they see that you have a history of making late payments, they might assume that you will make your mortgage payments late, too.
“Sometimes situations like a job change are unavoidable,” says Kelley Harwood, Vice President of the Consumer Lending Group at First National Bank. “A new job in the same field at or above your current salary looks better to a lender then, say, a new job in a different field, or starting your own business.
“The best thing a prospective homebuyer can do is connect with a mortgage expert. We’ll guide you through the dos and don’ts so that you are in the best position to buy a home.
“This is one of the biggest financial decisions people make, but that doesn’t mean it has to be a stressful experience. We take the intimidation out of it by providing well-informed answers to all of your questions.”
Got questions? Stop by your local First National Bank branch today and visit with a mortgage loan expert (They love explaining home loans. Seriously, it’s their thing.)
1 “The Worst Thing You Can Do Before Buying a Home” – http://blog.credit.com/2014/01/the-worst-things-you-can-do-before-buying-a-home-74570/
2 “Mortgage Mistakes: What Not to Do Before Applying for a Mortgage” – https://www.realfx.com/blog/mortgage-mistakes-what-not-to-do-before-applying-for-a-mortgage/
3 “Things to Do (and Avoid Before Applying for a Mortgage” – http://www.homebuyinginstitute.com/avoid-before-mortgage.php
4 “Things to Avoid Before Applying for a Mortgage” – https://smartasset.com/mortgage/things-to-avoid-before-applying-for-mortgage