Buying a home can be a complicated process. From staying away from opening new lines of credit right before closing to steering clear of co-signing with another person, there are rules to help guide you to a successful closing. To ensure a smooth home buying process make sure to follow these 10 commandments of buying a home.
Home Buying Memes – 10 Commandments of Buying a Home
Commandment 1: Thou shalt not change jobs, become self-employed or quit your job.
Mortgage lenders look for income stability. They want to know that if they approve you for a home loan, you’ll have the ability to meet your mortgage payments. Changing jobs leads to questions about why, could it happen again, and whether your new income will be adequate to enable you to meet your financial obligations.
Commandment 2: Thou shalt not buy a car, truck or van (or you may be living in it!)
Hold off on large purchases until after your home loan closes. Mortgage lenders want to know that you’ll be able to meet both the short (closing costs) and long term financial obligations of your home loan.
Commandment 3: Thou shalt not use credit cards excessively or let current accounts fall behind.
See Commandment #2. Credit cards are part of the debt-to-income ratio that mortgage lenders use to determine the amount of home loan you may be qualified to obtain. The more debt you have (compared to income), generally means the lower mortgage amount you may qualify for. The lower your long-term debt is, the more confidence underwriters have in your ability to repay, and you may qualify for a higher amount.
Commandment 4: Thou shalt not spend money you have set aside for closing.
If you built up a little nest egg to put towards closing costs, you might be tempted to dip into it now and then. Don’t! Give yourself the peace of mind of knowing the money you need in order to close on your home loan will be there when you need it.
Commandment 5: Thou shalt not omit debts or liabilities from your loan application.
Technology makes it pretty easy for mortgage lenders to get the full picture on your finances, whether you disclose everything or not. They will have more confidence in you as a potential borrower if you’re up front about debt and financial liabilities.
Commandment 6: Thou shalt not buy furniture on credit.
See commandments #2 and #3 above. Hold off on large purchases, such as furniture for your new home, until after your home loan has closed.
Commandment 7: Thou shalt not originate any inquiries into your credit.
Avoid activities (like applying for store credit, financing, credit cards, etc.,) that trigger credit checks. Activities like these are a red flag to underwriters that you may end up with a higher debt-to-income ratio in the near future, which could undermine their confidence in determining whether or how large of a home loan to grant.
Commandment 8: Thou shalt not make large deposits without checking with your loan officer.
Your mortgage lender can be a tremendous asset to you during the home buying process! Underwriters will want to know the origin of any large deposits to your bank account that can’t be explained by your usual sources of income. This includes gifts that family or friends may provide to you to go toward closing costs or a down payment. Check with your loan agent before making any large deposits (or withdrawals) from your bank accounts.
Commandment 9: Thou shalt not change bank accounts.
Qualifying for a home loan generally includes providing your lender with copies of your bank accounts for a period of time (such as the past two years). Avoid changing banks during the home loan process to avoid giving underwriters cause for concern.
Commandment 10: Thou shalt not co-sign a loan for anyone.
It might not occur to you that co-signing a loan or lease for someone reflects on your ability to obtain a mortgage – but it does! To underwriters, this shows up as a financial liability or debt as though it belonged to you. Don’t co-sign onto financial obligations during the home buying process.
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