Avoid Financial Folly When Financing Your Next Home
If you’ve decided to buy a home, it is important that your finances are in order. Your lender will be reviewing your credit, your bank accounts, and your income. Credit scores are often discussed when talking about home financing, but it’s important to keep your entire financial picture in mind.
Below are a few financial moves that you should avoid during the financing process, whether before pre-approval or before closing. The pre-approval is not a final guarantee. So, it is important not to cause changes to your finances to help makesure you are successfully financed.
Avoid massive credit spending
New payments are going to affect the buyer’s debt-to-income ratio in a negative way. This can lead to the buyer’s credit score going down, which in turn can end up hurting the interest rate on the pre-approved loan or even disqualifying the buyer. Buyers should try to avoid using their credit cards for smaller items as well since this still affects their debt-to-income ratio, even if it is minor.
Avoid falling behind on bills
Buyers should be careful not to be late on any of their bill payments. The payment history of individuals comprises approximately one third of their credit score. This means that not paying or paying late on a bill right before a loan pre-approval can cause disqualification.
Avoid change in employment
The last thing a buyer wants to happen is to lose employment. Employment is important to lenders since they are looking for reliable and stable income. Even if buyers switch jobs or start their own business, it can affect their loan pre-approval in a negative manner. Situations where a promotion means a salary structure switch to a commission-based salary can look bad to lenders.
Avoid unusual withdrawals or deposits
Lenders will be looking at the buyer’s assets and bank records and will notice any large and unusual deposits or withdrawals. Buyers who make any unusual deposits or withdrawals need to make sure that there is some kind of paper trail to look at. Depositing a huge amount of money into one’s account without documentation is going to raise red flags.
This of course isn’t an exhaustive list, but it should give you a good idea of the activities you should avoid when financing. If you’re looking to buy a home, contact Minteer Real Estate Team about what type of home is right for you, or start searching for homes today!