Shopping for a new home can be an exciting time. Whether you’re newly married and just starting out or looking for your dream home, it’s a time of possibilities and hope for the future. Of course, an essential element of getting the home you desire is getting the financing you need at an affordable price.
What many homeowners don’t realize is that the actions you take in the months leading up to your seeking that financing can dramatically influence your interest rate and even whether you’ll be approved for a home loan. (Keep in mind that even a small increase in your mortgage interest rate can mean thousands of extra dollars over the course of your 15 or 30-year mortgage.)
What Not To Do Before Buying A Home
Make sure that you’re set up for success by avoiding these actions in the months and weeks before you start shopping for a home loan.
1. Skip a payment on your credit card, utility or other bill. While it’s always important to pay your bills on time, it’s essential in the six months leading up to applying for a home loan. Lenders want to see a pattern of responsible bill management. You might be able to explain a late payment a year or more ago, but a late payment a month ago is much more troublesome.
2. Open a new line of credit. We understand that a new home means lots of new expenses, like new furniture, paint, light fixtures and landscaping. However, that new line of credit from your bank, the furniture store or home improvement store affects your debt to equity ratio, a key metric used by banks to determining whether they want to underwrite your loan or not. Keep in mind that lines of credit affect your credit worthiness even if you don’t use that available credit.
3. Change jobs. Mortgage lenders want to see a secure job history, so changing jobs immediately before you apply for a home loan can leave them feeling nervous. Better to wait to apply for that dream job until you’ve already secured your home loan and closed on your house.
4. Do anything to disrupt your credit history. As you pull your credit report in anticipation of looking for a home loan, it can be tempting to pay off an old debt you’d forgotten about or dispute an error in your report. However, this is better done at least six months prior to seeking a loan. In the months and weeks immediately prior to your loan application, you want your credit score to stay static. Even dramatic rises in your score can give loan officers pause, since they might be wary that the rise is false and not destined to last for the long run (as it can be during dispute inquiries).
To learn more about getting a home mortgage and to get pre-qualified for a home loan, contact The Potempa Team. We have more than 25 years combined experience in helping homeowners like you get the financing they need to make their dream home a reality.
