Thanks to the help of a determined Realtor and an exhaustive search, you have finally found the house of your dreams. While the challenging part of your home buying experience might seem to be behind you, in fact it has only just begun. Navigating the complexities of the housing market and home financing can be tricky, even to those with experience in real estate. As a result, it is easy for new home buyers to make simple mistakes that can keep them from getting the keys to that dream home if they aren’t careful. While it is highly recommended that home buyers talk to their Relators about what they need to do to give them the best opportunity possible of getting into their dream home, here are a few tips to help prepare you.
1.Avoid Applying for New Credit
When you apply for credit the lender will review your credit history using one of the credit reporting agencies. Too many inquiries into your credit over a short period of time can lower your credit score, which can increase the interest rate of your mortgage or even prevent you from getting a home loan. Most credit reporting agencies will count any mortgage related credit inquireswithin a 30 day period as only one inquire because it is assumed that home buyers will shop around for the best mortgage rate. In addition, too many credit accounts on your credit history can also lower your credit score.
2.Be Sure to Pay All Credit on Time
Another factor lenders look at when reviewing your mortgage application is your payment history. If your credit historyindicates that you have paid all of your credit on time without missing a payment or paying late it reassures lenders that you are more likely to repay your loan. On the other hand, even one late payment can seriously damage your credit score, preventing you from turning that dream home into a reality.
3.Hold off on Big Purchases
Looking to buy a new car, finance new furniture or make a large credit purchase while house hunting? If so, you might want to wait until after you’ve closed on your dream home. Any new credit applications from credit cards to car loans that appear on your credit history within a few months of applying for a home loan can cause you to appear as a bigger credit risk in the eyes of mortgage lenders. Unless absolutely necessary, avoid big credit purchases until after you’ve closed on your new home.
4.Keep Your Current Job
Before you begin looking for a new home, it’s a good idea to take an honest look at your current job. Is your job relatively stable? Are you willing and able to stay in the job for at least a year after buying a home? If you answer no to either of these questions you will most likely have a difficult time getting your home financed. To a lender, the more stable your life and income is the more likely you are to repay the loan. Those who change jobs often or who have unstable income are considered a credit risk to most lenders. As a result they often are unable to get financing and if they do they pay a much higher interest rate.
5.Be Honest on Your Application
Most mortgage lenders are very thorough about verifying all of the information you provide on your loan application. Intentionally lying or even providing incorrect information, even if it isn’t caught until after you have purchased the home, can have dire consequences. Not only is this considered fraud, it can also destroy your credit and potentially cost you your new home.
6.Avoid Co-Signing on a Loan
Although co-signing on a loan isn’t technically taking out credit, you are essentially promising to pay off the debt if the main credit applicant defaults on the loan. This can impact your debt to income ratio most lenders use to determine how much you are able to borrow.
7.Don’t Change Bank Accounts
Along with a steady job and a steady credit history, creditors also prefer that you have a steady bank account as well. If you can show you have maintained a large bank balance for 6 months or more the more likely you are to get a good interest rate on your mortgage. An inconsistent bank account balance or large deposits around the time you are applying for financing however are a sign to creditors that you may not be very financially stable.
8.Keep Your Down Payment in the Bank
Long before you begin house hunting you should start building up enough savings for a good down payment. If a friend or relative is giving you or loaning you money for a deposit it is still a good idea to deposit this money into your bank account at least 6 months or more before you buy a home. The more money you have in your account and the longer you have it the more favorable it will look to lenders.
9.Don’t Forget the Closing Costs
Closing costs are fees paid to the lender and various third parties related to the purchase of a home. These fees are typically paid directly to the lender at the time your close your mortgage and usually by the home buyer. While closing costs can vary they are usually between 2-5% of the purchase price of the home. Be sure that in addition to your down payment you also keep enough in your bank account to cover the closing costs.
10.When in Doubt Ask Your Realtor
Buying a new home can be a very confusing and complicated experience, even for those who deal with it on a regular basis. Unfortunately even a small mistake can cost you thousands in interest if you’re not careful. Having an experienced and knowledgeable Realtor by your side to help you navigate all the complexities of buying a home is crucial. Don’t be afraid to ask your Realtor questions even if you think they are unable to answer them. While your Realtor may not always have all the answers, a good Realtor will help you get the right answers.