If you are in the market to buy a home, getting pre-approved for a mortgage is one of the first steps to take. However, a pre-approval doesn’t guarantee that you will ultimately get the financing if you have any change in your circumstances between the pre-approval application date and your loan closing.
It is almost unbelievable what some people will do after they get their loan approval that could actually kill their financing and their approved mortgage. Here are some major home buying mistakes to avoid.
1: Making credit purchases after loan application, prior to closing.
This one seems to be a no-brainer, but it happens. Whatever you do, do not apply for any new credit between your loan application date and your closing. This is not the time to buy new furniture on a 0% financing plan! The new credit line could affect your credit score or debt-to-income ratio, or both, and could potentially lead to a mortgage denial. If you must make a purchase, talk to your mortgage lender first. In most cases, those purchases need to wait until after you close on your home.
2: Paying off collections
This mistake is also related to your credit score. It doesn’t sound logical, but paying off a collection account that is older than 12 months will likely cause your credit score to go down. That’s because although the account is paid off, it is still a negative item, and any accounts with more recent activity, positive or negative, will affect your credit score more than an account that has activity further in the past.
The only exception to paying off a collection is if the creditor agrees, in writing, to completely delete the account from your report if you pay it off. Even still, it’s best not to pay off the account if you already have a mortgage pre-approval, it’s best to leave everything regarding your credit alone because lenders may re-pull your credit once you are under contract, especially if there is a lag of more than a couple months between the initial application and when you go under contract on a home.
3: Larger than $500 non-payroll deposits into your bank account
This is the most common home buying mistake out there. Any non-payroll deposits into your bank account within 60 days of closing must be “sourced.” In other words, you need to show where it came from and that it was your money. This is most commonly a problem with people who have “mattress money” or cash they intend to use toward their home purchase. Cash can’t be used unless you deposit it into your account more than 60 days prior to closing. If you have any funds to deposit, do it before your pre-approval application and if after, inform your lender.
4: Changing jobs
Sometimes changing jobs is necessary. However, if you intend to change jobs, or worse yet, you lose your job after your pre-approval application, inform your lender immediately. If you want to make a job change, the best policy is to wait until after your closing. However, a change within the same field is usually acceptable with an increase in pay and an explanation as to why the change was made. If you get a job offer that is too good to pass up, by all means take it, but discuss with your lender first. If you lose your job, and are able to find work in the same line of work within 30 days, you should still be approved for your financing.
5: Making an offer on the first home you see
Many home buyers make this mistake…they look at one or two homes and make an offer on the first home they see. Although the house may be great, you will wonder for years if you made the right decision and should have looked at more, or could have gotten a better deal. The best policy is to view at least 10-12 homes, even if you fall in love with the first one you see. Get a good sense of the market, and then come back to the first and make sure. You may be surprised at what else is out there and find something you like even more.
Hopefully these tips will help you avoid some of the most common home buying mistakes.