Great advice here from Sean Williams. When buying a home, keep these in mind from the start and you will avoid any unpleasant surprises when the time comes to close on your new home. Lenders generally run another credit check just before closing. When in doubt, check with your lender before you make any large changes to your accounts.
Purchasing a home is always an exciting time but if you are financing there are a few things to keep in mind. Once you are pre-approved with a lender you need to make sure there are no drastic changes in your credit, bank accounts, or cash flow. Below is a list of "Dont's" I commonly find buyers forgetting about while they are waiting on their home to close...
1. DON'T deposit cash into your bank accounts. Lenders need to source your money and cash is not really traceable. Small, explainable deposits are fine, but getting $10,000 from your parents as a gift in cash is not. Discuss the proper way to track your assets with your loan officer.
2. DON'T make any large purchases like a new car or a bunch of new furniture. New debt comes with it, including new monthly obligations. New obligations create new qualifications. People with new debt have higher ratios…higher ratios make for riskier loans…and sometimes qualified borrowers are no longer qualifying.
3. DON'T co-sign other loans for anyone. When you co-sign, you are obligated. With that obligation comes higher ratios, as well. Even if you swear you won’t be making the payments, the lender will be counting the payment against you.
4. Don’t change bank accounts. Remember, lenders need to source and track assets. That task is significantly easier when there is a consistency of accounts. Frankly, before you even transfer money between accounts, talk to your loan officer.
5. DON'T apply for new credit. It doesn’t matter whether it’s a new credit card or a new car, when you have your credit report run by organizations in multiple financial channels (mortgage, credit card, auto, etc.), your FICO score will be affected. Lower credit scores can determine your interest rate and maybe even your eligibility for approval.
6. DON'T close any credit accounts. Many clients have erroneously believed that having less available credit makes them less risky and more "approvable". Wrong. A major component of your score is your length and depth credit history (as opposed to just your payment history) and your total usage of credit as a percentage of available credit. Closing accounts has a negative impact on both those determinants of your score.
The best advice is to fully disclose and discuss your plans with your loan officer before you do anything financial in nature. Any blip in income, assets, or credit should be reviewed and executed in a way to keep your application in the most positive light. I think the most common DON'T I run into is when buyers want to make a large purchase such as furniture prior to moving in...DONT DO IT!!
Sean S. Williams
of Louisville, Kentucky
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