Your Blueprint To Mortgage Rules For Your Next Exciting Home Purchase
Buying a home is an exciting journey. However, it’s also one that requires careful planning and consideration. At Elevation Mortgage, we understand the challenges and pain points that potential homeowners face during this process. To help you navigate this path with ease, here are ten commandments (plus 5 bonus ones) you should follow when buying a home.
1. Don't Change Jobs, Become Self-Employed, or Quit Your Job
Your employment status and income stability play a crucial role in getting your mortgage application approved. Any significant changes to your employment – like changing jobs, becoming self-employed, or quitting your job – can be a red flag for lenders. It may suggest instability, making them hesitant to approve your loan.
2. Don't Buy a Car, Truck, or Van (Or You May Be Living in It)
Large purchases, such as a vehicle, can significantly impact your debt-to-income ratio. It’s a key factor that lenders consider when approving your mortgage application. High debt can make you a risky borrower, potentially leading to a higher interest rate or even a rejected application.
3. Don't Use Credit Cards Excessively or Let Current Accounts Fall Behind
Maintaining a good credit score is essential in securing a mortgage with favorable terms. Excessive credit card use or falling behind on payments can lower your score. It’s vital to keep your credit usage low and make all payments on time.
4. Don't Spend Money That You Have Set Aside for Closing
The closing costs of a home purchase can be significant. Spending the money you’ve set aside for this crucial stage can delay the process, or worse, lead to a canceled deal. Ensure you have enough funds to cover these expenses.
5. Don't Omit Debts or Liabilities from Your Loan Application
Honesty is the best policy when it comes to your loan application. Concealing debts or liabilities can lead to serious consequences, including legal action. Be transparent and accurate in providing all financial information.
6. Don't Buy Furniture
While you might be tempted to furnish your new home immediately, hold off on making these big purchases. They can add to your debt and potentially affect your mortgage approval. Wait until the closing process is complete before buying furniture.
7. Don't Originate Any Inquiries into Your Credit
Too many credit inquiries can negatively impact your credit score. Whether it’s for a new credit card or another loan, avoid any new credit inquiries during the home buying process.
8. Don't Make Large Deposits without Checking with Your Loan Officer
Large, unexplained deposits can raise questions during your loan process. Lenders need to verify that you have the funds to cover the down payment and closing costs. Always consult with your loan officer before making large deposits.
9. Don't Change Bank Accounts
Similar to your employment status, changing your bank accounts can indicate instability. It can complicate the loan approval process as lenders review your banking history. Stick with your current bank throughout the process.
10. Don't Cosign a Loan for Anyone
Cosigning a loan increases your debt-to-income ratio, making you less attractive to lenders. Avoid taking on additional liabilities during the home buying process.
While this is a pretty standard list of things to follow after you have been Pre-Approved or a mortgage, over the years we have expanded this list to include the following. Take these as bonus rules. Here are 5 more rules to consider, though they don’t apply to everyone.
11. Don't go on vacation after you go under contract.
Vacations can disrupt the home buying process, potentially delaying necessary procedures such as inspections, appraisals, and paperwork. More critically, an unexpected expense on your trip could impact your financial portfolio, raising red flags for your lender.
12. Do Not Get Married
In community property states, a change in marital status during the home buying process can complicate matters. When you marry, your spouse’s debts and liabilities could become yours, potentially affecting your loan approval if they have a high level of debt or a poor credit history.
13. Don't receive gift funds before closing
Receiving gift funds before closing can certainly be helpful, but remember that all large sums must be properly sourced. Lenders need to ensure these funds are indeed gifts and not undisclosed loans, so be prepared to provide documentation proving the origin and nature of these funds.
14. Don't use cash for down payment, closing costs, or earnest money
Using cash for your down payment, closing costs, or earnest money can complicate the loan approval process. It’s crucial to remember that lenders need to trace your funds to ensure their legality. Cash transactions lack the necessary paper trail, raising questions about the origin of the funds and potentially obstructing your path to homeownership.
15. Don't omit or hide information about your employment, income, assets or financials
Concealing or omitting any information about your employment, income, assets, or financial circumstances from your loan application is highly discouraged. Honesty and transparency are paramount in this process; not being entirely truthful could lead to penalties, damage your credit score, and jeopardize your chances of securing a home loan.