Your dream house is within your grasp, and you’re already envisioning which furniture goes in which room. You’ve worked out your finances and gotten preapproved for your home mortgage. However, before you embark on the journey to homeownership, there are a few essential things you should know.
It’s common for potential homebuyers to make financial missteps that could jeopardize their chances of getting approved for a loan. Whether it’s a small purchase or an unexpected medical expense, these missteps could impact your loan eligibility and cost you the chance of getting your dream home. In this article, we’ll discuss nine financial moves that you should avoid to secure your home loan closing.
1. Don’t apply for new credit. A mistake most homebuyers make is applying for new lines of credit or opening new accounts before closing on their home. This resonates negatively on your credit and mortgage application, as it adds a new inquiry to your credit report and shows that you are planning to borrow more money.
2. Don’t change jobs. While a job offer can be an exciting prospect, it can also be detrimental to your mortgage application. Lenders want to see that you have a stable income source and a solid employment history of at least two years. A job change could disrupt this and result in lenders backing out of your application.
3. Don’t make large deposits or withdrawals. Lenders often require proof of where your down payment is coming from. Any large deposits or withdrawals without proper explanations could raise suspicion, and lenders will need time to verify the funds’ source. Be sure to keep all your financial documentation in order and avoid any unusual activity that will raise red flags.
4. Don’t cosign for anyone. Co-signing on loans or credit card applications, especially before closing on a home, can result in lenders taking into account the debt you have agreed to repay on behalf of another party. Lenders consider these debts when reviewing your ability to repay your mortgage, and it could decrease your credit score.
5. Don’t take on new debt. Taking on new debt, even if it’s a small purchase, after getting pre-approved for your mortgage could tip the scales in the wrong direction. You may think that the house expenses will start once you’ve moved in, but lendors are still keeping an eye on your financial activity before your loan closing.
6. Don’t buy a new car or boat. Although it may seem like the perfect time to get that new car or boat once you’ve been approved for your home loan, this may not be the best move. Taking on another loan will increase your debt-to-income ratio (DTI) and affect your monthly mortgage payments and eligibility.
7. Don’t delay your tax payments. Delinquent taxes affect your credit score and mortgage approval. Failure to pay your taxes could result in the government placing a tax lien on your property. This lien will have to be paid off before the home loan can be approved, and it could take some time before you can repay the lien.
8. Don’t make any unusual purchases. Now is not the time to make large, unusual purchases. This could raise suspicion and lead a lender to start investigating your financial situation further. Be sure to avoid any unexpected purchase that could hurt your credit score and loan approval.
9. Don’t forget to keep saving. While you may have saved up for a down payment, it’s essential to continue to save money after getting approved for your mortgage. Homeownership is an ongoing expense, and you must have money in reserves. Lenders also like to see that you have a financial cushion to cover any unexpected expenses.
Making any financial missteps before closing could lead to a mortgage application delay or rejection. Therefore, it’s crucial to keep all your finances in order and avoid any unusual activity until you’ve successfully closed on your home. By following these tips, you’ll increase your chances of a successful and smooth mortgage closing!
