The home buying process is a stressful one. You’re juggling finding the right house, battling other buyers, moving and securing a loan. The loan process can feel never-ending, and the last thing you want is to drag out, or potentially stop, the process.
Remember, your credit and finances will be monitored right up until your loan closes, so don’t take milestones along the way as permission to forget these rules.
Analyzing your credit
Every time a business checks your credit score—what’s called a “hard inquiry” — it takes a little ding. A few points may not seem like much, but if you’re on the edge of approval or securing the rate you were quoted during pre-approval, a few inquiries could spell trouble.
You’ll receive a credit report during the initial stages of securing a loan. Fight the temptation to seek out (and dispute) errors. Now is not the time to make inquires, cancel cards or pay off debt. If your report was illuminating, tackle the issues once your loan is secured. Your credit score can be artificially high if you dispute the mistakes while securing a loan, and mortgage lenders may be wary to approve you because of it. On the other hand, if your goal is to buy a home in 2019, resolve the errors now; the process can take months.
Opening a new line of credit
Owning a new home means lots of new expenses. You want new furniture to fill it and paint to spruce things up. Don’t jump the gun. Taking on any new debt, no matter how small, could throw off your debt-to-income ratio — a magic number in mortgage lending — and disqualify you.
Just say no to store credit cards, extending an existing credit line (that new bedroom set can wait) or any other changes that will make lenders look twice.
Be sure you’re paying all your bills, on time. In the stress of home buying, it’s easy to let a payment slip past, but it could have serious consequences. That’s especially true for missing mortgage payments. If you are still paying another mortgage, or own a rental property, be sure you’re up to date. Missing a mortgage payment will make you ineligible for a loan from most lenders for at least a year.
Missing other bills, like your utility bill or car payment, could be just as detrimental. A missed bill, even months before you apply, could lower your credit score and jeopardize your changes of securing a loan. Even if your score isn’t low enough to disqualify you, a big enough change could require a new approval — and that means delays.
Moving money around
Wait until your home closes to make any big transfers, deposits or withdrawals. Your loan approval is based on the financial picture painted at the time of application. Any changes you make — adding or taking away money — will impact that. Generally, anything more than $500 will leave you with some explaining to do. You’ll need to submit a letter documenting the source of the money, along with proof.
Lenders are on the lookout for loans that need to be paid back, so if you receive a monetary gift, consider waiting to deposit it or be prepared to get a letter from the gift-giver assuring you won’t need to pay back the amount.
Even after you’ve received final approval, confirm with your lending agent before moving money to pay closing costs.
During the mortgage loan process, change — even good change — could set you back. Avoid a change in job status that will cause a lender to question your financial stability. Full time to part time, salary to commission, and employee to contractor could all raise red flags.
Changes in the other direction, like moving from part-time to full-time employment or taking on a new role at the same company, shouldn’t impact your ability to close, but err on the safe side and consult your lending agent before making any changes.
Leasing or buying a car
To a lender, a car represents more debt. It doesn’t matter if you can lock in a great interest rate or the car is well within your means: Big changes in your debt-to-income ratio — and cars qualify as big — will, at the very least, delay the process.
Ready to purchase a home? Congrats! Be sure to keep your Farm Bureau agent in the loop so they can help you protect one of your most important purchases, and ensure you are covered.