What not to do
Once you've signed the papers and set a closing date, it might seem like it's smooth sailing ahead. It's true—you've completed the most challenging parts of buying a home. However, you may not realize your finances remain under a microscope until you receive the keys. This bit of first-time homebuyer advice is all about common mistakes anyone could make that could affect a home loan.
To ensure the rest of your home purchase goes smoothly, here are eight things you don't want to do:
1. Change jobs
Most lenders require at least 30 days of paycheck stubs prior to final loan approval. A change in income or pay structure—like going from a salaried position to commissions—could make it impossible to prove your financial stability before closing.
2. Pay bills late
Your credit report is usually pulled twice—once during the prequalification process and again before closing. Late payments could affect your credit score and, in turn, your loan.
3. Apply for other types of credit
Tempted by a new credit card offer? Now is not the time. Applying for new credit leads to a "hard" credit inquiry, and a new account will lower your average account age—both of which can lower your overall credit score.
4. Close credit accounts
Even if an old account is lying dormant, it's best to leave it. Closing a credit account lowers the amount of credit available to you, which can increase your credit utilization rate (the percentage of your total available credit that you're using).
5. Make a major purchase
Purchasing a car or buying new furniture on credit can change your debt-to-income ratio, a number essential in determining your creditworthiness. Even if you make a major purchase in cash, this could deplete your "cash cushion"—something lenders look at to ensure you're in good financial shape. It's best to wait until you get the keys to furnish that new home and buy appliances.
6. Accept big cash gifts
Before you deposit that large monetary gift from mom and dad, beware. All major money movement must be documented, and receiving unexplained funds from family or friends could call into question your ability to handle all mortgage-related expenses on your own.
7. Dispute items on your credit report
Once you alert the credit bureaus to a potentially inaccurate item on your report, it's marked as disputed. Lenders will often not close on a mortgage until any disputed items are resolved, which means your loan could be delayed or even denied.
8. Cosign on a loan
You already know taking on an additional loan is a no-no, but cosigning a loan for someone else can be equally as detrimental. Even if you never pay a cent on the liability, lenders still see it as exactly that—a liability that could potentially affect your ability to pay your mortgage.
By following this first-time homebuyer advice, you can keep your finances looking good all the way to closing day.
Keep it up. You're getting smarter about home buying.
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