Getting ready now for your first mortgage
While some of these might seem like “obvious” no-nos…I’m here to tell you that sometimes even real estate agents goof on these because you forget that when you’re on the “real estate” path, you need to step off the “regular” life path for a moment or the people who want to loan you money for your home…well, let’s just say they get a little nervous!
When I purchased my first home after the financial meltdown in 2008/2009, my lender was so frazzled he required a letter from my grandma stating that the $100.00 Christmas gift was not a loan I needed to repay. While lenders’ nerves have settled since then, you still want to look profoundly financially boring and predictable to secure your mortgage.
Normal, harmless everyday activities could hurt your chances of buying your first home. You want to avoid any slip-ups that might make your lender think twice about processing your mortgage loan. (If you’re buying in cash, you can skip this article and spend as you normally would!)
To know me is to know I’m all for expressing yourself, being proud of being nerdy and non-conforming, and being in touch with your inner child. Throw that out the window for a moment, please. You’re buying your first house, so (financially) pretend to be suuuuper boring. It’s only for a few months.
May I present seven things that you should never, ever do during the time you are searching for a home…
NEVER Change Jobs (this is the opposite of being predictable!)
Stability is key when seeking approval from lenders, so the months leading up to your home purchase is not a good time to seek other employment or start up any new endeavors.
While enhancing your career and moving up is important financially, you should wait until after you’ve moved in, or at least signed the final documents, to switch jobs or pursue any entrepreneurial interests.
Remember, lenders don’t want to take risks and are looking to loan money to someone who they know can pay it back. Leaving your current job can be a red flag to them!
NEVER Pay-Off Creditors (without checking with your lender first)
Sounds counterintuitive, but it’s not. Certain loans require you to have certain “reserves” in the bank to qualify. So, you might actually do more harm than good if you pay off your credit cards, student loans or any other debt you have. Check with your lender first before you pay anything off.
Having debt is not always a bad thing and may not be as big of an obstacle to your owning a home as you think. So don’t pay it off unless your lender tells you to do so.
NEVER Make Major Purchases
One of the fun things about buying your first home is all the other new stuff that comes with it. Often, people want new furniture, appliances, and the list goes on and on!
Most major purchases today require credit, and that means you don’t want to have a large number of inquiries on your report during the loan process. Plus you don’t want to have a higher debt-to-income ratio than necessary before you close on a home.
Your best bet is to hold off on buying anything major until you have completely finished the mortgage process and you’ve moved in. That new car can wait! (And if you ask me…you if you want to pursue financial stability, buy a used car.)
NEVER Have Late Payments
You should always make payments on time whether you’re planning on buying your first home or not. However, in the months leading up to your looking for a home, you want to be especially careful not to be late on car payments, insurance premiums, credit cards, even parking tickets! This could derail the approval of your mortgage or increase your interest rate.
NEVER Accept Out-of-Ordinary Bank Deposits
Lenders prefer to see proof that the bulk of your down payment fund has been in your account for at least two months — also known as “seasoning.” (see note above about a Christmas gift from my grandma!)
As stated before, stability is key, so you don’t want it to like look money suddenly moved into your account out of nowhere. This looks suspicious and may signify that you may be depending on family members or others for your down payment. (There is a way to get a loan or gift from family though!) The lender wants to know that you can afford and maintain a mortgage.
NEVER Agree to Co-sign
Your home buying process is not the time to co-sign anything! Even though you’re not the one making the payments, and no matter how much you trust your beneficiary, co-signing a loan, no matter how small, increases your debt-to-income ratio.
And a default on the part of the borrower can jeopardize your entire loan process…and thus your new home!
NEVER Have A Change in Your Assets
Don’t forget that you’re already making a major investment — buying your new home! It’s not the time for other investments even if the stock market is bullish. Other investments would deplete your liquid assets that you need to make lenders comfortable, so you’re better off waiting until you’ve officially bought your new house.
If you want more clarity on anything I discussed here, contact me.
I'm Libby Earthman. I specialize in helping first-time buyers and sellers pursue financial security on the Northern Front Range.
825 Delaware Ave, Suite 208
Longmont, CO 80501