Buying your first home is an exciting process. But as one of the most significant purchases you’ll ever make, it can also be a little intimidating. To ensure a fun and straightforward experience, you’ll want to avoid these five mistakes that may turn into roadblocks on your path to homeownership.
#1 Changing Jobs Before Closing Your Mortgage
There are several steps in your homebuying journey. During one of them, processing, your Mortgage Loan Originator will have to verify the information in your loan application. Changing jobs, becoming self-employed, or quitting a position during this stage means that your new income source has to be verified with questions like:
- Are you getting paid the same?
- Is the new job in the same industry as your previous position?
- Will pay be commission-based, salaried or hourly?
Employment reassessment may slow down the loan process, which may cause issues if you’ve found your dream home and want to make an offer.
In addition to slowing down your loan approval, lenders generally want to see a year or two of steady income that they can assume will last. If you’re thinking about following a new career path, your best bet is to save the move until after you’ve closed on your mortgage.
#2 Making Large Purchases During the Loan Process
There are a few important numbers that factor into your ability to get the home loan you want. One number is your debt to income (DTI) ratio. Your DTI is all your monthly debt payments divided by your gross monthly income. It’s one way that lenders measure your ability to repay and adding more to the debt side of this equation may adversely affect your chances for a loan approval.
If you decide to purchase a new car, for example, then those car payments may significantly increase your debt. Before you make any large purchases, talk to your Mortgage Loan Originator to see if the subsequent change to your DTI will stall your homebuying goals.
#3 Changing Your Credit Card Usage
During an initial pre-approval, your Mortgage Loan Originator will check your credit to help you better understand what your homebuying budget is. However, your credit may be re-run for any number of reasons during the loan process, including:
- Verifying that your debt obligation hasn’t changed during the underwriting process
- Adhering to new lending rules such as the Ability-to-Repay rule (of the Dodd-Frank Act)
- Performing a final credit check before closing to ensure your DTI hasn’t changed
If your credit card use has increased, then your credit score will be affected. Your best bet is to keep making payments and keep using your card as you normally would.
#4 Making Large Deposits Without Talking to A Mortgage Loan Originator
If you make large deposits into your bank account, you’ll have more money for a down payment, closing fees and other homebuying costs. This might seem common sense, but the issue arises when that money needs to be tracked to its source. Fraud regularly occurs in the mortgage industry, and large deposits that can’t be traced are a tell-tale sign for many of them, including:
Straw buyers – Individuals who purchase for someone else in order to circumvent legal restrictions.
Identity theft – Buyers who set up a bank account using someone else’s social security number.
It may help to have documentation for your large deposits, but a simpler approach is to avoid making them immediately before or during the loan process. If you believe such a deposit is necessary, talk to your Mortgage Loan Originator for advice on the best course of action.
#5 Increasing Inquiries on Your Credit
Applying for a new line of credit means generating an inquiry into your credit history. These inquires can hurt your score, something you’ll want to minimize as much as possible during the mortgage process.
Be sure to ask your Mortgage Loan Originator for advice if you feel that you need to get an additional loan or credit card during the buying process.
Bonus: Talk to a Homebridge Mortgage Loan Originator
Many of the mistakes here are harder to avoid than others. Moreover, your unique homebuying goals may mean that there are additional actions you can take to make the homebuying process more or less easy.
To ensure a smooth experience, it’s best to consult with a trusted and experienced mortgage lender. Homebridge has over 30 years of experience helping first-time homebuyers turn their dream of homeownership into a reality. With us, you can expect a homebuying journey that simple, affordable and enjoyable. Contact us today to get started!