You can get plenty of advice about what you should do when you’re in the market for a new home, but did you know, there are just as many things you shouldn’t do. Ignorance is definitely not bliss. In fact, making one of these simple mistakes could prevent you from getting the lowest possible interest rate or even keep you from qualifying for any loan. Here are the top tips for first-time homebuyers on what not to do before you buy a home.
- Do not change jobs. Lenders want to know that you’re a good risk. That means you have a history of a steady paycheck. Changing jobs sends up red flags to lenders. So does quitting your job or starting your own business. Hold off on career decisions until you’ve signed the contract.
- Don’t change banks. Having a history with a financial institution is another sign of stability.
- Don’t start moving money around, either. One of the things lenders do when reviewing your loan for approval is look at where you’ll get the funds for your down payment and closing costs. They won’t take your word for it. They’ll want documented proof including two or three months of statements from checking, savings, CDs, money market funds and similar financial assets. They may also ask to see your 401K or other retirement accounts. If you’ve been moving money around, it makes it harder for the lender to properly document your assets. It also sends up a red flag of potential fraud, especially if a large deposit show up out of nowhere. Keep your money put for several months (at least two) before applying for a loan.
- Don’t buy any big ticket items on credit. That includes cars, furniture, jewelry or vacations. Doing so will increase your debt-to-income ratio, another thing lenders look at.
- Don’t co-sign a loan for anyone. Not even your BFF that you’ve known since pre-school. Not even for your mom. It’s the same as buying something for yourself on credit, and it runs up your debt-to-income ratio in the same way.
- Don’t blow your cash on big ticket items, either. Hang onto every penny. You’re probably going to need it for closing costs.
- Don’t apply for new credit. Having inquiries made into your creditworthiness is another red flag. The exception would be inquiries relative to finding a mortgage. Rate shopping for a home loan is an acceptable practice that should affect your credit score.
- Don’t miss your credit card payments. A history of timely payments on your obligations is like a big shiny star on your loan application. It says you’re responsible.
- Never ever, ever lie on your home loan application. Tell the truth, the whole truth and nothing but the truth. Anything less is fraud.