Thursday, February 27, 2014
The 5 Worst Things You Can Do Before Buying a Home
Some missteps can be costlier than others. Here’s a look at five of the worst things you can do before buying a home.
It’s almost become cliché in the mortgage industry, but the warning still bears repeating: Don’t buy a truckload of furniture until after your loan closes. The prohibition goes beyond sofas and settees. Avoid obtaining credit for any major expense, like a car, a boat or, yes, a new bedroom set.
Be careful with even minor expenses. If you absolutely need to obtain new credit or accrue debt before closing, talk with your loan officer as soon as possible.
New payments are going to affect your monthly debt-to-income ratio (and residual income on a VA loan), and not in a good way. Hard inquiries on your credit report could also lower your credit score. That might hurt your interest rate if you haven’t locked, or even knock you out of qualifying range altogether.
Lenders will scour your most recent bank statement as part of the preapproval process. It’s not like they forget about it after that. They’ll take another look at your assets and bank records again during the underwriting process.
You’ll need to explain any unusual deposits or withdrawals. Lenders will require clear documentation and a paper trail if you’re putting gift funds toward a down payment or closing costs. Stuffing a wad of undocumented cash into your account is going to raise some red flags.
Having a late payment hit your credit report before closing can devastate your deal. Payment history comprises about a third of your credit score.
One solitary 30-day late payment can clip 60 to 110 points from your credit score. Maybe not a huge deal if you had an 800 score, right?
Possibly. But if that 30-day late blemish is a mortgage or rent payment, some lenders will boot your application altogether. Many will require at least 12 consecutive months of on-time payments in order to qualify for a home loan.