Everyone knows that buying a home is a significant commitment and investment, and preparing to purchase a home requires some financial discipline and smart decisions to get approved for a loan at the lowest possible interest rate. Some money decisions that you may be tempted to make right before you close on your home could seriously hinder your ability to get qualified. Here are four of the most common mistakes people make that you should avoid.
1: Using Emergency Savings for a Down Payment
After the financial crisis of 2008 many lenders put in more stringent requirements to purchase a home, including at least a 20% down payment. It is still possible to get a loan without a full 20% down, but you will probably have topay private mortgage insurance (PMI) or get a higher interest rate. You may be tempted to use your emergency savingsfor a bigger down payment to avoid PMI, butkeeping that money in savings in case of a sudden job loss or other financial emergency is usually a better option. Talk to your lender about the best way to structure your loan with the down payment you have, and avoid dipping into those savings.
2: Making Other Large Purchases
Right before you buy a home is definitely not the time to make big purchases, such asbuying a new car, getting a new credit card, charging a big balance on an existing card, or taking out a student loan. These financial moves will affect your credit score, and could also impact your debt-to-income ratio, which your lender uses to calculate whether you can afford that home. You may be surprised to get to your loan closing and find out you can no longer qualify for the home you were planning to buy.
3: Quitting or Changing Jobs
Sometimes changes in your work life are inevitable, and while it’s not necessarily going to derail your entire loan process if you quit one job and start a new one, it can make lenders nervous. If your new job is at a lower pay rate or you quit a job without having anything else lined up, you may even be disqualified from the loan. You should also avoid job-hopping prior to trying to buy a home; lenders will ask you to prove 9 to 12 months of steady employment.
4: Not Getting Pre-Approved
Before you put in an offer for a home, you need to get pre-approved by your lender. They will conduct a thorough review of your financial situation and tell you how much you can get qualified to borrow. Going through the process of negotiating a price for your dream home only to find out you can’t get approved for a loan for that amount is frustrating for everyone. Pre-approval can help you avoid it.
When you are ready to turn your dreams of homeownership into a reality, come to Integrity First Lending. Our helpful mortgage loan officers can give you advice on qualifying for a loan and help you through the entire process.