Guide

What not to do before buying a house

What not to do before buying a house
Written by Publishing Team

Prepare yourself for success in buying a home

In today’s highly competitive housing market, buyers need to be strategic to get the home they want.

Fortunately, there are some simple best practices that you can follow when searching for a home and applying for a mortgage that will put you on the path to success.

If you know what to expect — and how to avoid common home buying mistakes — you can give yourself the best possible chance of registering the home you want. Here’s what to do.

Check your home purchase eligibility (January 12, 2022)


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Mistakes can cost you when buying a home

When you’re getting ready to get a mortgage and buy a new home, it’s important to clean up your personal finances and present yourself as a strong candidate for borrowing.

However, this doesn’t just mean saving cash for down payment and closing costs.

It also means avoiding common financial mistakes that can reduce your ability to borrow — or even, in the worst case scenario, deny you a mortgage.

“Most buyers are so busy simply saving for the down payment and standing in the door that they forget the little details that could get you stuck — like a low credit score and paying down their debts,” says Michelle Harrington, COO of First Team Real Estate.

Don’t get so caught up in saving and looking for a home that you forget about other details that affect your mortgage.

Khari Washington Realtor and owner of 1St United Real Estate and Mortgage, agree.

“It’s easy for home buyers to make mistakes during this process because this deal is one of the most valuable things a person will have in common during their lifetime,” Washington says.

“Buying a home entails doing many different activities at the same time. There are home condition issues, mortgage financing issues, contract negotiation issues, and valuation issues that can all cause problems, distract you, and lead to errors in judgment if you’re not careful. .

So, what do you need to look for? How can you set yourself up for success?

7 things you should not do before buying a home

Here are some of the most common mistakes first-time homebuyers make, why they’re important, and how to avoid them.

1. Do not finance a car or other large item before buying

Jim Roberts, president of True North Mortgage, says the biggest mistake buyers can make is financing a car before applying for a mortgage.

“Also annoying is when buyers want to go out and buy new furniture and appliances on credit before closing their new mortgage,” he explains.

“All of these activities are not considered significant, as lenders will do a final credit check prior to closing; if new debts are added, this could jeopardize loan approval.”

Not only is your FICO score at risk.

Taking out a loan to buy a car or finance an expensive item like a boat, wedding, or vacation can increase your debt-to-income ratio (DTI), making you appear as a less attractive borrower to the lender.

“If your DTI is above a certain threshold – usually around 43% – you are considered a risky borrower,” warns Harrington. “Avoid making any major purchases or financing a new car for six months or a year before you want to buy a home.”

2. Do not exceed credit card debt

Getting the maximum credit card is one of the worst things you can do before closing a home loan.

“The extra debt payment amount will offset your income and lead to your eligibility for lower mortgage financing,” Washington says. “It will also lower your credit score, which can increase the cost of your loan.”

Roberts notes that in a credit scoring system, the actual amount of debt doesn’t matter—you may owe $2,000 or $20,000.

What they care about is how much you owe in relation to your credit limits‘ says Roberts.

“If you owe $2,000 and your card has a maximum limit of $2,500, your card is almost maxed out and will result in significantly lower credit scores — resulting in higher rates and monthly payments when it comes to getting a loan,” he explains.

To get the best mortgage rate — and in the interest of keeping debt levels low — try to keep your credit usage below 30% of your total credit limit.

For example, if your credit card allows up to $3,000, try to keep a balance under $900. And pay the card in full each month, if you can.

This will improve your credit score, reduce your debt, and help you qualify for the best home loan possible.

Check your eligibility for a home loan. Start here (January 12, 2022)

3. Do not quit your job or change profession before purchasing

Consistent proof of work is essential when applying for and getting approved for a mortgage.

“Changes in jobs can create lending problems, especially if your salary structure changes from salary to commission, as this requires a longer earnings history — usually two years when it comes to commissions,” Roberts adds.

“The change from salary to hourly wage can also cause some headaches in lending, as hourly workers can have differences in their income based on how much they work,” he explains.

Ruling Roberts thumb? Aim to have a consistent work history of two years or more with the same employer or at least in the same field of work.

If you’re already in the accounting field, for example, switching from one accounting firm to another shortly before buying a home won’t present any red flags to your lender.

But if you switch into a completely new field – say, from accounting to hairdressing – you will likely need to work a full two years in the new industry before you can qualify.

4. Don’t assume you need a 20% cut.

Many first-time buyers assume they need a 20 percent down payment to buy a home. But while getting a 20 percent drop comes with perks — like avoiding private mortgage insurance (PMI) — it’s not always the best option.

Waiting until you get a 20 percent drop can slow your home buying schedule by years. And the longer you wait to buy, the higher home prices you’ll go after – which likely means you’ll need a pair Larger down payment.

Fortunately, there are many loan programs available today that require little or no down payment. These include:

Washington notes that “some conventional loans can require as little as 3% if you pay mortgage insurance.”

Usually, you need to pay mortgage insurance if you cut less than 20 percent. But the good news is that mortgage insurers today are charging more affordable monthly premiums than they did years ago to borrowers with good credit.

“A lot of times it makes more sense to cut money and pay off other debts rather than trying to cut 20 percent on a home just to avoid paying mortgage insurance,” Roberts says.

Check Your Eligibility for a Low Down Payment Mortgage (January 12, 2022)

5. Do not shop for homes without prior approval

Before going for a home search, it is essential to obtain pre-approval for a mortgage. Otherwise, you could set yourself up for disappointment.

“If a potential buyer finds a home they like and then tries to get pre-approved for a loan, the home may be gone before they even finish getting pre-approved. In addition, many sellers want to show their home to only serious buyers and will ask for a letter of approval. advances from the buyer,” says Washington.

There’s another compelling reason to get informed consent early in the process, too.

“A lot of times, you really have no idea how much you can afford for a home until you get pre-approval from the lender,” Harrington says.

The pre-approval process involves applying with a lender who will check your income, credit history, and assets. Only after checking these documents can the lender approve you for a home loan and tell you your true price range.

6. Don’t go with the first mortgage lender you talk to

You are excited to claim a home and want to speed up the process. So you have to apply with a mortgage lender and move forward once you are approved.

Experts agree: This is a huge mistake.

“Although the rates of many lenders are very close to those of others, some lenders charge above average rates. Getting a bad loan at a higher interest rate can be very costly in the long run, so be sure to shop and get written quotes. of many different mortgage lenders,” recommends Washington.

One of the biggest fallacies among borrowers is that their long-standing bank will offer them the best deal.

“Big banks are usually much more expensive in both interest rate and closing costs than a good mortgage broker or other lender,” warns Roberts.

So, when you get quotes, try checking out several different types of lenders. Check rates at your current bank, but also look at online mortgage lenders, credit unions, and maybe even a mortgage broker.

You won’t know who can offer you the best deal until you compare custom quotes from at least 3-5 companies.

Find your lowest mortgage rate. Start here (January 12, 2022)

7. Don’t make any major financial changes before closing

Once you have a signed purchase agreement and are approved for a home loan, you will go through the final stages of underwriting.

This is mostly a waiting game while the lender re-examines your financial statements and issues the final approval. But don’t be fooled into thinking it’s a done deal. Nothing official until you sign the final closing papers.

The last thing you want to do while waiting for final loan approval is to make major financial changes, such as:

  • buying a car
  • Significantly increase your credit card balance
  • Opening new credit cards
  • change of professions
  • Apply for new loans or lines of credit

“It’s tempting to use any extra money you have to buy thousands of dollars worth of furniture or open a Home Depot credit card so you can save money on new appliances. But these moves can easily tip the delicate balance in your DTI and throw off your credit until you no longer qualify for on loan,” notes Harrington.

Remember: loan approval is not final until the loan is funded, at which time the house will be in your name.

“But before that time, the lender can revoke the approval if there is a material change in the buyer’s position,” says Roberts.

So maintain a period of financial calm before closing, and don’t do anything that might put your final approval — and your home purchase — at risk.

Best practices when buying a home

To improve your odds of getting approved for a mortgage and qualifying for a lower interest rate, be financially careful in the weeks and months before you apply for a home loan.

Roberts suggests three practices to follow before buying a home:

  • First, don’t close any active credit accounts. Keep any active revolving accounts open
  • After that, do not apply or open any new credit accounts
  • Additionally, try to pay your credit balances to 30% of your credit limit or less

Of course, you’ll want to save as much cash as possible.

Remember, a down payment isn’t the only home buying expense up front. You will also have to pay closing costs, which are usually 2-5% of the loan amount (or $2,000 to $5,000 for every $100,000 borrowed).

You should also keep track of any large deposits in your bank accounts. “If you make any deposits into your checking or savings accounts that aren’t payroll deposits, be prepared to document where they come from,” Roberts adds.

Finally, review the three free credit reports (available at Annualcreditreport.com) and correct or remove any errors or inconsistencies you notice there.

Summary: What not to do before buying a home

Yes, it is a competitive market. But there are still must-have homes for savvy buyers.

To sum up, here are the seven things you should never do right before buying a home:

  1. Get a car loan or finance other big things
  2. Maximum number of your credit cards
  3. Quit or change jobs to a new field
  4. Suppose you need a 20% reduction.
  5. Go look for a house before getting pre-approved
  6. Use the first mortgage lender you talk to
  7. Make big financial changes before closing

As long as you avoid these mistakes during the home buying process – and keep your finances in the best possible condition – you should be on the right track to owning the home.

Check the new price (January 12, 2022)

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