Do Not Do if You're Buying a Home

Don't Move Money Around

When a lender reviews your loan package for approval, one of the things they are concerned about is the source of which you'll be getting funds for your down payment and closing costs.  It's most common to be asked to provide statements for the last 2 or 3 months on any of your liquid assets.  This includes checking accounts, savings accounts, money market accounts, certificates of deposit, stocks, mutual funds, your company 401K and any retirement accounts.

If you have been moving money between accounts, there may be large deposits and withdrawals in them. Consult your loan officer if you feel the need to move money around.

The mortgage underwriter (the person who actually approves your loan) will probably require a complete paper trail of all financial transactions.  You may be required to produce canceled checks, deposit receipts, and other seemingly tedious data. You may very well become exasperated at your lender, but they are only doing their job correctly.  To ensure quality control and eliminate potential fraud, it is a requirement on most loans to completely document the source of all funds.  Moving your money around, even if you are consolidating your funds to make it "easier", could make it more difficult for the lender to properly document.

So, it is best to leave your money where it is until you consult your loan officer.

The Effect of Changing Jobs

Changing employers may not really affect the ability to qualify for a mortgage loan, especially if you'll be earning more money.  However, the effects of changing jobs can be damaging to some loan applicants. Before you make any move, it is always best to consult your loan officer first.

Salaried Employees

If you are a salaried employee who does not earn additional income from commissions, bonuses or overtime, switching employers should not create a problem.  Just make sure to remain in the same line of work.  Hopefully, you will be earning a higher salary, which will help you better qualify for a mortgage. Consult with your loan officer.

Hourly Employees

If your income is based on hourly wages and you work a straight forty hours a week without overtime, changing jobs should not create a problem. Consult with your loan officer.

Commissioned Employees

If a substantial portion of your income is derived from commissions, you should NOT change jobs before you buy a home.  This has to do with how mortgage lenders calculate your income.  They average your commissions over the last two years.

Changing employers creates an uncertainty about your future earnings from commissions.  There is no track record from which to produce an average.  Even if your are selling the same type of product with essentially the same commission structure, the underwriter cannot be certain that past earnings will accurately reflect future earnings.

Changing jobs would negatively impact your ability to qualify for a mortgage. Consult with your loan officer.

Bonuses

If a substantial portion of your income on the new job will come from bonuses, you may want to consider delaying an employment change.  Mortgage lenders will rarely consider future bonuses as income unless you have been on the same job for two years and have a track record of receiving those bonuses.  Then they will average your bonuses over the last two years in calculating your income.

Changing employers means that you do not have the two year track record necessary to count bonuses as income. Consult with your loan officer. 

Part Time Employees

If you earn an hourly income but rarely work forty hours per week, you should NOT change jobs.  There would be no way to determine how many hours you will work each week on your new job, so no way to accurately calculate your income.  If you remain on the old job, the lender can just average your earnings. Consult with your loan officer.

Overtime

Since all employers award overtime hours differently, your overtime hours cannot be determined if you change jobs.  If you stay on your present job, your lender will give you credit for overtime income.  They will determine your overtime earnings over the last two years, then calculate a monthly average. Consult with your loan officer. 

Self Employment

If you are considering a change to self-employment before buying a home, don't do it!  Buy the home first! 

Lenders like to see a two year track record of self-employment income when approving a loan.  Plus, self-employed individuals tend to include a lot of expenses on the Schedule C of their tax returns, especially in the early years of self-employment.  While this minimizes your tax obligation to the IRS, it also minimizes your income to qualify for a mortgage loan.

If you are considering changing your business from a sole proprietorship to a partnership or corporation, you should also delay that move until your home purchase is final. Consult with your loan officer. 

No Major Purchases of Any Kind

This includes furniture, appliances, electronic equipment, jewelry, vacations, expensive weddings...etc. and, of course, automobiles. Consult with your loan officer before you make any purchases other than every day necessities. 

When an individual's income starts growing and they manage to set aside some savings, they commonly experience what may be considered an innate instinct of modern civilization...the desire to spend money!

Since North Americans have a special love affair with the automobile, this becomes a high priority item on the shopping list.  Later, other things will be added and one of those is likely to be a house.  However,by the time home ownership has become more than a distant and hopeful dream, you may have already bought the car.  It happens all the time...sometimes, just before you contact a lender to get pre-approved for a mortgage.  As part of the interview, you may tell the loan officer your price target.  He will ask you about your income, your savings, and your debts, then give you his objective opinion.  "If only you didn't have this car payment, you would certainly qualify for a home loan to buy the house you want." Don't assume anything. If you haven't bought the car yet, think ahead.  Think about buying a home first and then the car.  Which would be more important to your financial well being?  Consult with your loan officer first.