Purchasing a new home is typically the biggest financial investment you’ll ever make and the process can be very stressful. The process of searching through the homes for sale, making an offer and actually closing on a home can be a lengthy process, especially for buyers in search of their perfect dream home.
Depending on the length of the process, buyers may find themselves in a variety of situations that could affect their home buying power. A change of jobs, marriage, divorce, birth of a new child and relocation all come with a variety of financial changes that may positively or negatively affect your financial situation.
When you apply for a home loan, banks look closely at all of your financial records, and most of all look for stability. They look to see how long you have been employed with a stable income, how many times you’ve been late on credit card payments, and how much you have in savings. All of these factors combine to formulate ratios referred to as your debt-to-income ratios which will in-turn determine the amount you will be allowed to borrow from the bank.
As banks go through all of these details, it is vital that the potential homeowner not make any significant changes to their financial situation. Doing so could drastically change the loan amount the bank approves and therefore could end your home purchase rather quickly or send you back searching for a home all over again.
Here are three things not to do right before applying for a home loan.
#1: Do not change jobs. Banks look at your length of employment and consistent, hopefully increasing, salary over the past few years. If you are in a salaried position and have an opportunity to move into a higher paying job in the same field, this may help your home buying power. If you are considering making the move to self-employment, it is highly advised you wait until after the closing on your home.
#2: Do not make big ticket purchases. Vehicles, furniture, appliances, vacations, jewelry … anything bought on credit and especially new loans taken out will call negative attention to your loan application. In the excitement of purchasing a home it can be very tempting to purchase new furniture or new appliances. Feel free to do all your research and shopping ahead of time but beware of actually making those purchases via credit card or even in cash. Remember, banks will double-check your financials right before closing, especially in today’s market. Any big-ticket purchase or new loan such as a car-loan will be a red-flag in your home-loan file and could be detrimental to your home closing.
#3: Do not be late on payments. Staying current on all of your loans and credit cards is vital when going through the home purchasing process. Even staying current on your other payments such as the cable bill, gas bill and electric bill is important. Be vigilant in paying on-time, even a little early! That being said, don’t feel like you have to pay-off credit cards in full. Depleting your savings to pay-off credit cards at this stage is not recommended.
It’s easy to get caught up in the excitement of purchasing a home and all of the new “things” that go with it. Remember, patience in this situation is vital … the new leather couch for the living room and the shiny new car for the big garage can wait until after you have the key-in-hand to your dream home.
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