Most homebuyers need to rely on a mortgage once they decide to buy a home and most of them know approximately how the process works: you find a lender, you find a good mortgage package and you are good to go if your credit report looks good. However, what many homebuyers are not aware of is that they need to make sure not to attract negative attention during the entire mortgage-obtaining process. This means that they need to stay away from splurging, tapping into their down payment savings and making additional debts to be able to get financing for their dream home. Here are some things to avoid that could raise some questions at the lender’s office that future homebuyers should stay away from:
Avoid taking out other loans for major purchases
Having other significant loans parallel to the mortgage can cast a shadow on your creditworthiness. It will increase your overall debt and affect your credit score. Many borrowers are not sure how much debt it is that can jeopardize them at the lender’s, but there is a fine line most lenders work by, i.e., your debt-to-income ratio should not be over 30%, so make sure to keep your debts under the 30%. Everyone crossing this line will probably be seen as a risky mortgage applicant which can result in above-average interest rates or not getting a mortgage at all. Paying attention to your credit score and checking it on your own before going to the lender’s is probably the best way to avoid higher interest.
Avoid delaying payments that are due
You may be someone who waits until the last minute to pay your bills, but ending this bad habit will do much for you during the mortgage application process. Did you know that being late with a payment just once (whether it’s utilities or credit card debt) is enough to reflect on your credit score? Missing payments repeatedly will lead lenders to believe that you will do the same with the mortgage and fall behind your mortgage payments. It is risky behaviour so make sure your bills are paid on time every month.
Avoid a job change during the mortgage process
Examining finances also means keeping an eye on your employment. While lenders will have nothing against a promotion or better-paying job in the same profession, they will frown upon a job or career change especially if it pays less and it is a completely new professional field. A key requirement is steady income for the two past years, so starting a new career from scratch while you are about to apply for a mortgage can decrease your chances with the lender. Make sure to get the mortgage first, but also make sure that your new job won’t be an obstacle to paying the mortgage back. You will need a plan to be sure you can make the monthly mortgage payments, and opting for a mortgage amount you can handle is one way to go.
Don’t splurge your savings
You probably already know that you are required to pay at least the minimum 5% of the down payment. Saving up for the down payment may take its time, but when you finally have the money together, don’t splurge it on other things bit by bit. Don’t turn it into “vacation” money or any of that sort, even if there seems to be a bit extra. Buying a home is not just the mortgage; you will also need cash to cover for closing costs, furniture, moving, etc. The more you save, the better for you.
If you want to know more about preparations for buying a home, make sure to contact me here.