You are prequalified, you find a home and go through the whole process only to be derailed at the last minute. No closing, no new home. You spent money on inspections and appraisals and maybe even now have no place to live. WHY? A mistake you made in your finances changed the status quo and made you unloanable. YOU can avoid these situations and ensure you get to the closing and get the keys. I have had people in these situations and yes – it killed their deals.
When you are looking for a new home, you need to be an angel. You need to keep an open book of finances and ensure that you keep the lines of communication open with your lender. Here are the biggest things to avoid – EVEN A YEAR from buying a home.
1. KEEP YOUR FINANCES SIMPLE. Keep your money in the bank. Any major deposits or withdrawls of money in your bank account can affect your closing costs and will cost you a lot of time and paperwork in letters of explanation. If your spouse is not on the loan, don’t move money back and forth between accounts – keep it simple.
2. PAY ALL YOUR BILLS ON TIME. A no brainer, but you would be surprised. Even if it is the wrong amount, even if they are wrong and you are right, PAY THEM. You can always get credits, etc. but don’t let them report you to the credit bureaus. No late payments, no problems. One old collection or new debt can change your debt-to-income ratio. Late payments are often not excused, even if you have a good reason. And post BK late payments are a strict no no. Another idea is to subscribe to a credit monitoring agency for this period of time so you know if anything is reported to effect your credit so you can head it off before any damage is created. Old debts can pop up at any time as creditors go to new collection agencies or redo their books.
3. DO NOT COSIGN FOR ANYONE – for anything. Neither a borrower or lender be. This is new debt and can change your ratios or if they default cause you not to be eligible for years.
4. DON’T CHANGE YOUR JOB. Job stablility is one of the criterias that are used by lenders. If you are in the same industry and get promoted or make more money or at least the same money, you should be fine, but a new job in a new industry can be a wait of 6-24 months. And income can affect your qualifying ratios. Obviously a non-voluntary change is unavoidable, but sometimes a volutary change can be scheduled.
5. NO NEW CREDIT CARDS. No matter how much they offer you to save that day – do not apply for any new loans or credit cards. Credit is a delicate thing and it can be affected by how much credit you can get and balance, credit limit ratios.
6. KEEP YOUR CREDIT CARD BALANCES LOW AND PAYMENTS HIGH. Credit cards can be your best friend or worst enemy. Balance and credit limit ratios can severely and quickly plummet your credit score. Continue to use the credit cards – stopping can hurt too. Just use them sparingly for minor purchases and pay off all or most when the bill comes.
7. STUDENT LOANS – DON’T CHANGE THEM – PAY ON TIME OR KEEP THE WAY THEY WERE. Student loans are complicated. But they are one thing that can quickly ruin your loan and affect you for a long time. Pay them and don’t change them during this process. They are a major loan and not only affect your credit, but if you are doing an FHA, VA loan, getting any type of downpayment assistance or even a non government loan, any issues with default, slow payment or non payment of student loans can kill your deal.
8. DON’T GET ANY TICKETS. Parking tickets, speeding tickets, toll tickets, no village sticker tickets. Municipalities tend to send their collections out swiftly and frequently so you can get the same ticket on your credit multiple times – causing multiple reductions. Also, you need a photo id in order to close – driver’s license, state id or passport.
9. FILE YOUR TAXES AND DON’T FILE AMENDENTS. Taxes are lenders favorite issue these days. File on time – April 15. Don’t file extensions, don’t file amendments to past years – no “second look” until after closing. Even W2 employees who do not file a lot of deductions are suspect. They want to see the income you report to the government for verification.
10. DON’T BUY ANYTHING MAJOR – DON’T EVEN APPLY FOR A LOAN ON ANYTHING. WAIT until after closing day to buy new furniture or things for the house, new car, change your car loan, etc. New loans can change your debt ratios and hurt your credit score for additional credit and inquiries. Even paying cash can be those big deposits and withdrawls discussed earlier or could take more money out of your account for closing. Lenders like to see sometimes more than your closing costs in your bank account.
I know it seems strict, but getting the keys to your home is your main goal, everything else must be second until you close. If you are not sure if something will affect you – by all means, contact your lender and discuss it. They should be happy to help.