If you're financing your home purchase it's crucial that your personal finances are in the best order possible until after the closing. Here are 10 things to avoid during this time:
1. Job Changes. Changing jobs or becoming self-employed while applying for a mortgage is not a good idea. Lenders are looking for stability, and job security, as signs that you will be able to repay your loan. Making sudden changes will appear risky and may interfere with the process. If it is possible, hold off on taking a new job until after the closing.
2. Bank Changes. Do not open new or transfer accounts. Lenders will be thoroughly looking into your finances and changes will raise red flags and questions which will slow the process.
3. Taking Out New Loans. Now is not the time to buy a new vehicle or make any other large purchases. Adding to your debt-to-income ratio will look risky and will also cause problems when lenders are working out the details of your loan.
4. Wracking Up Credit Card Charges. Hold off on purchasing furniture or other big ticket items during the loan process. Increasing your debt makes your financial situation appear unstable. Wait until after the closing to pick up new accessories for your home.
5. Making Late Payments. Show that you are conscientious and responsible with your money and debts--lenders are looking for stability! If you are late with other payments, lenders will think you are struggling financially and may decide you are a bad investment. Remember, if you've had a history of late payments your credit score could be affected. If you tend to be forgetful, set up an alert on your phone to stay ahead of due dates.
6. Making Large, Sudden Deposits. Lenders like to see that the funds you are using as your down payment have been in an account accruing interest for at least a few months prior to your purchase. Making a down payment sized deposit suddenly will leave lenders wondering where the money came from. Make your transfers as early as possible.
7. 'White' Lies on your Loan Application. This seems obvious, but be completely straightforward and honest on your banking paperwork. Make sure to include all sources of income and all debts and liabilities. False reporting may seem harmless, but it is fraud.
8. Co-Sign on Another Loan. Now is not a good time to do friends or family members favors by adding your name to their loans. Even though you wouldn't be making payments, co-signing increases your debt-to-income ratio which will negatively impact your ability to obtain a mortgage.
9. Apply For New Credit Cards. Do not increase your debt potential by applying for, or accepting, new credit card offers. Also, avoid checking your credit during this process; lenders will see a spike in recent inquiries as potentially negative and it's best to avoid it altogether.
10. Spend Your Closing Costs. The fees due to cover legal and lender fees are called closing costs. Sometimes these can be negotiated and either paid by the seller or, depending on your mortgage, factored in to your loan. Normally, however, you can expect to bring 1-3% of your home's purchase price with you to closing to cover these costs. Be sure to plan ahead if affording that sum will be a strain.