You’ve done everything right, saved for a down payment, built your credit, and now you’re under contract to settle on a new home. “Doing” any of the 21 items listed below could cause your purchase to go sideways. Read on so you’re not blind-sided just before closing.
- Don’t change jobs, quit your job, or become self-employed just before or during the loan process. Your mortgage lender craves job stability and reliability of income for the distant future, so changing jobs before you close on your new home would send up red flags. Obviously, quitting your job during the process wouldn’t go over very well. Lenders like to see 2 years of tax returns, so this also applies if you’re in business for yourself. I had a client who changed jobs 2 weeks before closing, and his new company (which was in Korea) couldn’t produce pay stubs in a timely manner. My client did not close on his home.
- Don’t lie on your loan application. Not only is this just wrong, it’s also called loan fraud and the penalties are steep.
- Don’t buy a car. There are three major categories that a lender is going to look at when approving you for a loan: Credit, Assets, and your Debt-to-Income Ratio. Purchasing a new vehicle will likely affect all three of these items for most people.
- Don’t lease a new car. Banks treat lease payments like any other debt and, most of the time, there is a fair amount of money that needs to be put down in order to lease a car. You want all of your money and credit available at least until you close on your home.
- Don’t change banks. Everything that is verified at the beginning of the loan process is also re-verified just before closing. Changing banks during this time just creates more time spent and paperwork for you and your lender.
- Don’t get credit card happy. This goes along with obtaining new credit. You want your debt-to-income to be the same or better when you are nearing closing day. Do your best to not add any additional debt on your cards.
- Don’t apply for a new credit card. New inquiries for credit confuse mortgage lenders, and they throw up major red flags. Your credit score will be checked again just before closing to make sure that everything is the same as when you were approved. Because new credit translates into a higher risk to the lender, it’s best to wait until after closing before establishing new credit.
- Don’t close existing credit accounts. While this may sound like a good idea, it’s not while trying to get a mortgage because it could lower your credit score. If you do close a credit account, you are reducing your available credit. So, if you have balances on other cards, your percentage of credit “utilization” is going to increase.
- Don’t ignore lending requirements. There are two people that you have to satisfy when getting a home loan: the appraiser and the underwriter. The underwriter who is working your loan may require a number of documents in order to give you a “clear to close”. Give every effort to getting them what they need in order for your loan to close on time.
- Don’t co-sign a loan for anyone. Even though you’re not making the payments for this loan, it’s a risky financial move whether you’re getting a mortgage for yourself or not. Of course, your lender would have to factor these other loan payments into your debt-to-income ratio.
- Don’t forget to switch your utilities. I know this sounds trivial but in dealing with inspections, the title company, repairs, lending requirements, etc., the utilities may be the last thing on your mind.
- Don’t get behind on bills. Paying your bills on time is a track record of responsibility, so skipping a bill or having to make a late payment strongly affects you being able to secure a mortgage loan.
- Don’t move around money to make your bank account look better. Lenders like to see the money that you have for your down payment in your account for at least 2 months. So, the mad money that you have under your mattress and gift money from mom should be put into your account well before you apply for a mortgage.
- Don’t allow your emotions to get the better of you. Buying a new home is always exciting but sometimes the process can seem overwhelming. Many times this happens when first negotiating the initial sales price, but emotions can really run high when negotiating repairs that have come to light through the home inspection. As a buyer, you shouldn’t ask for every little item to be fixed, but you should also not be expected to fix major issues either. Everything is negotiable and, chances are, it will work out.
- Don’t give your earnest money deposit directly to the seller. This typically occurs when buyers purchase an FSBO. An Earnest Money Deposit is a good faith deposit that can only be spent by the seller if the buyer defaults on the purchase agreement. Realtors automatically have this deposited in their company’s escrow account until closing. If there aren’t any Realtors in the picture, the seller may feel that they can spend that money freely. This is bad, very bad. The buyer is supposed to be credited back their earnest money when the loan closes.
- Don’t spend your savings. There are a number of expenses that your cash will have to go towards, like your down payment, closing costs, inspections, appraisal, etc. The lender may also require a certain amount of cash reserves in addition to that, so unless you’re loaded, go easy on your savings.
- Don’t become best friends with the seller. Personally, I feel that the buyer and the seller should never talk to each other. Because emotions can run high with both parties, you could run into issues that could negatively affect you if you and the seller become too friendly. This is a business transaction.
- Don’t buy big ticket items on credit. You’ve been fully approved, inspections are over, and you are a couple of weeks away from closing. You’re feeling great and find out that the furniture store down the street is having a 80% off sale. Resist the urge to splurge! Remember, the underwriter is going to check your credit standing just before closing, so wait until after closing to avoid any hiccups. A couple of years ago, a client of mine bought a timeshare 2 weeks before closing. We all freaked out for a few days, but she was able to close.
- Don’t spend your closing costs. Unless your purchase agreement states that the seller is paying your closing costs (depends on the market conditions in your area), you will have to pay these costs at closing in the form of a certified check. Find out from your lender how much your closing costs are, then don’t touch that money until closing.
- Don’t panic if the appraisal for your new home comes in low. Every once in awhile, we see a situation when the appraisal comes in lower than the sales price. While this could be problematic, it’s not the end of the world and there can be resolutions. Since getting an appraisal is a contingency for obtaining a loan, the seller would have to drop the price of the home or you could get out of the contract. You could also pay more for the home or meet somewhere in the middle with the seller.
- Don’t be alone. If you’re working with a Realtor, they can actually take a lot of the burden off of you by scheduling inspections, negotiating repairs, and communicating with your lender and the title company. They are there to take some of the weight off of your shoulders and make things run as smooth as possible. It’s our job.
About the author: The above Real Estate information on Top 21 Things You Should NEVER Do When Buying a Home was provided by Jeff Nelson of IXL Real Estate – Eastern Shore. Jeff can be reached via email at firstname.lastname@example.org or by phone at 251-654-2523. Jeff has helped people move in and out of properties for nearly 12 years.
Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
I service Real Estate sales in Baldwin County including the cities of Spanish Fort, Daphne, Fairhope, Foley, Gulf Shores, and Orange Beach.