How to Ruin your Credit and Lose your Dream House
So you want to buy a house. You know what you need to do. Make sure your credit is up to snuff. Consult with a Mortgage Broker and figure out your budget. Determine your criteria for your new home and prioritize them. Find a Realtor (me, obviously!). And start house hunting!
What you may not think about is what NOT to do. Many buyers don't realize their lender will recheck credit scores just a few days before closing, so even after you're approved and headed toward the closing table, it's important to watch anything that could affect the closing. Here are a few things to keep in mind to keep your credit at its best and get you all the way to home ownership.
1. Don't change jobs
Something even I didn't realize when buying our last house is that commission, bonuses and overtime can't be included in your salary figures unless you have two years of records showing you consistently earn those extras. So don't quit your job, change jobs or become self employed. Even if it's more total money in your pocket, if your base salary goes down, it WILL affect your debt to income ratio.
2. Don't make large purchases
This may seem obvious, but don't make any big purchases because it will likely impact your debt to income ratio. This includes anything that would require a pull on your credit or financing. I know, you want to order that new couch that's going to look perfect in your new open floor plan while it's on sale. But resist! It's better to pay a little more later than to do something that could keep you from your dream home.
3. Don't omit debts or liabilities from your loan application
Your loan officer's job is to get you a loan while protecting your lender's assets. That means she's going work hard to make your loan work, but it also means she's going to catch that little collections issue from a few years back. She doesn't get paid unless she gets you to the closing table, so she'll still find a way to make it work, but remember you need her to want to work for you. Be honest and don't make her job harder than it already is.
4. Don't co-sign a loan for someone
It may seem like it's their bill and not yours, but it will show up on your credit report and can affect your debt to income ratio.
5. Don't make undocumented deposits
Here's one you probably wouldn't think of. Don't make large deposits without consulting your loan officer. This includes receiving a gift from someone wanting to help with your down payment. I'm not saying your friends and family can't help, just go for full disclosure with your lender, because they WILL see the money show up in your account and you WILL have to account for it.
6. Don't spend the money you've set aside for closing
It seems obvious but it's easy to overlook in the excitement. Just because you have seller paid closing costs doesn't mean you don't have to bring any cash to the table so make sure you don't spend it before you get there!
7. Don't use credit cards excessively or fall behind on current accounts
You're trying to keep your money in your account but that doesn't mean you should be running up credit cards or not paying bills. Remember, your lender will run your credit again right before closing, so keep all your bills up to date. And have I mentioned not spending excessively?
8. Don't change bank accounts
This is similar to not making undocumented deposits. Moving your money around can affect your credit score, your debt to income ratio and other things you may not even think of. Don't make any changes that aren't absolutely necessary and when you do, make sure your loan officer knows.
I know this is a lot to take in, but if you remember only one thing from this list, it's this: your loan officer is your best friend during this process. Treat her right, be honest and follow her instructions. I'll find you the house, she'll get you to the closing table and we'll all live happily ever after!
What you may not think about is what NOT to do. Many buyers don't realize their lender will recheck credit scores just a few days before closing, so even after you're approved and headed toward the closing table, it's important to watch anything that could affect the closing. Here are a few things to keep in mind to keep your credit at its best and get you all the way to home ownership.
1. Don't change jobs
Something even I didn't realize when buying our last house is that commission, bonuses and overtime can't be included in your salary figures unless you have two years of records showing you consistently earn those extras. So don't quit your job, change jobs or become self employed. Even if it's more total money in your pocket, if your base salary goes down, it WILL affect your debt to income ratio.
2. Don't make large purchases
This may seem obvious, but don't make any big purchases because it will likely impact your debt to income ratio. This includes anything that would require a pull on your credit or financing. I know, you want to order that new couch that's going to look perfect in your new open floor plan while it's on sale. But resist! It's better to pay a little more later than to do something that could keep you from your dream home.
3. Don't omit debts or liabilities from your loan application
Your loan officer's job is to get you a loan while protecting your lender's assets. That means she's going work hard to make your loan work, but it also means she's going to catch that little collections issue from a few years back. She doesn't get paid unless she gets you to the closing table, so she'll still find a way to make it work, but remember you need her to want to work for you. Be honest and don't make her job harder than it already is.
4. Don't co-sign a loan for someone
It may seem like it's their bill and not yours, but it will show up on your credit report and can affect your debt to income ratio.
5. Don't make undocumented deposits
Here's one you probably wouldn't think of. Don't make large deposits without consulting your loan officer. This includes receiving a gift from someone wanting to help with your down payment. I'm not saying your friends and family can't help, just go for full disclosure with your lender, because they WILL see the money show up in your account and you WILL have to account for it.
6. Don't spend the money you've set aside for closing
It seems obvious but it's easy to overlook in the excitement. Just because you have seller paid closing costs doesn't mean you don't have to bring any cash to the table so make sure you don't spend it before you get there!
7. Don't use credit cards excessively or fall behind on current accounts
You're trying to keep your money in your account but that doesn't mean you should be running up credit cards or not paying bills. Remember, your lender will run your credit again right before closing, so keep all your bills up to date. And have I mentioned not spending excessively?
8. Don't change bank accounts
This is similar to not making undocumented deposits. Moving your money around can affect your credit score, your debt to income ratio and other things you may not even think of. Don't make any changes that aren't absolutely necessary and when you do, make sure your loan officer knows.
I know this is a lot to take in, but if you remember only one thing from this list, it's this: your loan officer is your best friend during this process. Treat her right, be honest and follow her instructions. I'll find you the house, she'll get you to the closing table and we'll all live happily ever after!
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