So you have decided it is time to buy a home, congratulations, you have made a wise decision. Planning ahead is crucial to buying a home, particularly if you don't have extensive financial resources. Since mortgage lenders will be sizing up your finances carefully, don't give them any reason to reject your application.
Here a few things that you should NOT do for at least six month before buying a house.
1- Do not make any Major Purchases
If you're buying a home, don't invest in any major purchases. Cars, weddings, jewellery, furniture and electronics can all wait until you're settled in your new home. When you make a major purchase, you limit the amount of money available for your down payment, and decrease the amount of liquid capital in your name.
If you do have to make a major purchase before buying a home, you might want to put it on a low-interest credit card until after your mortgage application is approved. Sometimes you can't control what life throws you, but think carefully about your options before making a decision.
2- Don’t Move Money Around
When a lender reviews your loan package for approval, one of the things they are concerned about is the source of funds for your down payment and closing costs. Most likely, you will be asked to provide statements for the last two or three months on any of your liquid assets. This includes checking accounts, savings accounts, money market funds, certificates of deposit, stock statements, mutual funds, and even your company pension or retirement accounts.
If you have been moving money between accounts during that time, there may be large deposits and withdrawals in some of them.
The mortgage underwriter will probably require a complete paper trail of all the withdrawals and deposits. You may be required to produce cancelled checks, deposit receipts, and other seemingly inconsequential data, which could get quite tedious.
Moving your money around, even if you are consolidating your funds to make it "easier," could make it more difficult for the lender to properly document and measure your finances'
So leave your money where it is until you talk to a loan officer.
3- Do not make large Investments
It is also a bad idea to make investments just before buying a home; again, you're decreasing the liquidity of your assets. If you've come across a new stock in which you'd like to invest or if it's a great time to buy bonds, wait until after you've settled the finances on your home.
Furthermore, you'll have to disclose all of your finances before buying a new home, which means accounting for every withdrawal and deposit in all of your accounts. This can get quite tedious, especially if you're trying to dig up cancelled checks for the new Home Theatre or HDTV you just had to have three months ago.
4- Do not change your Bank
Changing banks is always a hectic ordeal, so don't do it before buying a home. You'll have to provide information about previous accounts that are now closed, and therefore inaccessible. And if you diversify your money too much in money market accounts, savings accounts, checking accounts and other places, you'll have a harder time with the disclosure process.
If you're fed up with your bank and want to change, tough it out a little longer and switch after your mortgage is approved and you've set up shop in your new house. This will save you hours of headaches and frustration.
As mentioned above, there will be times when you can't avoid all of these things before buying a home, but know that it's in your best interests to wait until the dust settles, so to speak. The goal should be to move into your new house with as few obstacles as possible.
5- Do not change Job Unless Absolutely Necessary
Try not to change jobs. Your employment is a key factor in the mortgage approval process, and if you can't show steady employment, you might be denied. Of course, you can't help matters if you've just been laid off or an opportunity presents itself that you can't pass up.
If you're going to change jobs before buying a home, wait another six months before going ahead with the real estate transaction. This gives you an opportunity to establish employment and to show a steady income of pay checks from a single employer. This looks much better on a loan application than a long list of recent employers. |