I have several clients who are about to buy a home. Two for the first time. I remember when I bought my first home. We were so excited that we slept on the floor in sleeping bags because our furniture was going to be delivered the next day. Yes, I was much younger then, but I still remember the excitement.
Even though you want to be prepared and buy everything you may need before moving day, please resist this urge until after the closing. Now is the time to save money, not spend. Here are some of the reasons why:
A Final Credit Report Can be Pulled Right Before Closing
If you are needing a mortgage, you want to make sure you protect your debt-to-income (DTI) ratio and your credit scores (FICO®) right up until closing (FICO® is a person’s credit score calculated with software from Fair Isaac Corporation – in case you were ever wondering). Your FICO® scores can affect how much money a lender will lend you and at what rate. Higher FICO® scores can help you qualify for a lower rate, which can save you money. There have been times when buyers are so exciting about their new home to be, that they start buying things that they will need. This can hurt your chances of your mortgage going through…right up to the last day. Here are some things not to do before buying a home:
Don’t Buy Large Purchases
I know the urge to buy new furniture, appliances, etc. is normal, but don’t do it. Any time you put purchases on your credit, apply for new credit cards (even with no interest, no payments for a given period) or take out cash advances, will affect your credit scores. If you have any questions about finances, call your lender. Remember, he or she is part of your team.
Don’t Lease or Buy a New Car
If you need to lease or buy a new car, hold off until after the closing, if possible. Buying a car, especially with credit, will go on your credit report and lower your FICO® scores. Remember the debt-to-income ratio. Buying the car with cash can still affect your score.
Don’t Change Jobs
It is best not to change jobs, if possible. Lenders like you to have a steady source of income, preferably from the same company or at least from the same type of industry. If you do have to change jobs, please let your lender know as soon as possible.
Don’t Ever Cosign a Loan
If a family member or friend comes to you and asks you to cosign a loan for them, please say no. Everything I read about cosigning, tells me it is a bad idea. Remember, any loan you cosign will show up on your credit report as one of your own debts. If your family member or friend does not pay the loan or misses payments, the lender will come looking for you to pay.
Don’t Make Large Deposits or Cash Deposits into Your Bank
Lenders prefer for you to have the money for your down payment in the same account for at least two months. If family is going to give you money as a gift, try to deposit it in your bank ahead of time. Having a letter stating that it is a gift is also a good idea.
Don’t Miss Loan Payments
Make sure you stay on time with all your loan payments, even after you have received your loan commitment from your lender. Remember a credit report can be pulled right up until closing, so make sure you don’t miss any payments.
Happy house hunting!
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