Purchasing a home is a significant milestone and one of the largest financial commitments most people will ever make. While preparing for this big step, it’s crucial to avoid certain actions that could jeopardize your chances of securing a mortgage or negatively impact your financial health. Here’s a comprehensive guide on what you shouldn’t do right before buying a house.
- Don’t Make Large Purchases!
Why it’s important: lenders scrutinize your financial stability closely before approving a mortgage. Making large purchases, such as buying a car or expensive furniture, can alter your debt-to-income ratio and potentially reduce your mortgage approval amount or disqualify you altogether.
What to do instead: postpone major purchases until after closing on your new home. Keeping your finances stable shows lenders that you’re a reliable borrower.
- Don’t Change Jobs!
Why it’s important: lenders prefer to see stable employment and a steady income history. Changing jobs right before applying for a mortgage can make you appear as a higher risk, especially if the new position has a probationary period or if it’s in a different industry.
What to do instead: if at all possible, delay any job changes until after you’ve closed on your home. Consistent employment history strengthens your mortgage application.
- Don’t Open or Close Credit Accounts!
Why it’s important: opening new credit accounts can lead to hard inquiries on your credit report, which may lower your credit score temporarily. Conversely, closing credit accounts can reduce your overall available credit and increase your credit utilization ratio, also negatively impacting your score.
What to do instead: keep your existing credit accounts open and avoid applying for new credit. Maintain low balances and continue making payments on time.
- Don’t Miss Bill Payments!
Why it’s important: even a single missed payment can significantly damage your credit score and raise red flags for lenders. They want to see that you can manage your existing obligations responsibly.
What to do instead: set up automatic payments or reminders to ensure all bills are paid on time. Consistent, on-time payments reflect positively on your credit report.
- Don’t Make Large Deposits Without Documentation!
Why it’s important: lenders need to verify the sources of your funds. Large, unexplained deposits can cause delays as lenders will require documentation to ensure the money is not borrowed or from an illegitimate source.
What to do instead: keep detailed records of all deposits and be prepared to provide explanations and documentation, such as gift letters or proof of sale for assets.
- Don’t Co-Sign Loans!
Why it’s important: co-signing a loan makes you financially responsible for that debt. This additional liability can affect your debt-to-income ratio and potentially disqualify you for your mortgage.
What to do instead: politely decline any requests to co-sign until after you’ve secured your mortgage and settled into your new home.
Securing a mortgage and buying a home requires careful financial planning and discipline. By avoiding these common pitfalls, you can present yourself as a reliable borrower and increase your chances of a smooth home-buying process. Stay mindful of your financial activities, maintain stability, and you’ll be well on your way to ac achieving your dream of home ownership.