There is a lot you can do in advance when preparing to buy a home. For one, avoid complicating the mortgage application process by following these helpful Do’s and Don’ts!
Top 5 Do’s
#1 Do- Review Your Credit Report
The last thing you want is to be surprised by something on your credit report. Therefore, you should request a free copy from www.annualcreditreport.com with all three credit bureaus included. You will want to check for errors or adverse information that needs to be addressed or removed. Be mindful that many lenders won’t fund a loan with trade lines in dispute so if you do put in a dispute, know that it may take a couple of months to clear.
#2 Do- Pay All of Your Bills on Time!
Especially on any other mortgage payments- this is critical! Further, for optimal rates, your credit cards and car loans should be current as well. If you had a late payment (no more than 30 days) on either credit card or auto payment, you may be able to clear it with a short explanation, but these late payments will still hurt your credit and the pricing of your loan. Setup auto-pay on your accounts and play it safe.
#3 Do- Ask Questions
If something is not clear to you, ask lots of questions and make sure it is explained to you thoroughly until you are comfortable. There is no shame in wanting to know all of the details about securing a mortgage and any possible fluctuations that could arise. Prepare by asking “what if...” questions to understand the impact of multiple scenarios.
#4 Do- Move Quickly
The faster you can provide lenders with the requested paperwork, the faster your loan will go. Dedicate time to this compilation because it will be worth it. Not being diligent about this can give you more of a headache in the end. And rely on your real estate broker to help with obtaining building documentation that’s been requested.
#5 Do- Save Your Savings
Assuming you have been saving for this specific investment, keep the funds you allocated for your down-payment and closing costs dedicated to just that!
Top 5 Don’ts
#1 Don’t- Change Your Job Status
Lenders like to see stability therefore it is prudent to avoid changing jobs, quitting or becoming self- employed. Banks equate these moves as “risky”, and self-employment generally needs 2 years of documentation to show profitability.
#2 Don’t- Incur New Debt
This can have a two-fold negative impact because certain added debt (like a car loan) increases your debt to income ratio and will also increase your credit utilization (both of which you should want to keep low). Also, take note that when you have high credit utilization this can lower your credit score.
#3 Don’t- Co-Sign a Loan
All in all, co-signing a loan, would be viewed as new debt that you are liable for and will indeed be included into your debt to income ratio. Again, a ratio we would like to avoid increasing.
#4 Don’t- Make Large Cash Deposits
When banks see large cash deposits in your account history (because generally they will ask for 3 months- worth), it raises questions on the source of the funds which you will have to provide documented proof of. Also, drastic fluctuations in your account can raise a red-flag as well.
#5- Change Your Credit
We already broached the topic of NOT increasing your credit card balances. This takes it further and includes NOT applying for, closing or opening a new credit card, as well as NOT consolidating or paying off balances. Rule of thumb, don’t change anything unless you speak to your lender first.