Watch Out! – 14 Things to Avoid When Buying a Home
Do you know what not to do before buying a house?
Many first-time home buyers are surprised to discover just how many ways you can mess up a home purchase.
You may have got your pre-approval, found a home you loved, and made an offer. But to avoid fowling up the transaction, you must be extremely careful until the sale has closed.
Many of these items are mortgage mistakes that can be easily avoided. If you have an exceptional mortgage broker or real estate agent, more than likely, a few of these points have already been mentioned.
Maybe your Realtor or lender has already given some timely advice on what to do as a first-time buyer.
Buying a house is a big deal. It is crucial to be educated on the process.
From my thirty-seven years of experience as a real estate agent, I’ve compiled a list of what you should do before buying a home.
These twenty tips will help you make the best buying decision possible.
Making mistakes is easy when you have never bought a home before. Avoid these home-buying mistakes to keep the stress out of your life!
Keep reading as I tackle what not to do before buying a house.
1. Don’t Miss Loan Payments.
You must keep your payments current on all your loan accounts, including credit cards and car loans. The lender will look at your credit again before finalizing your mortgage, and if you have missed any payments, it may lead to losing the loan commitment.
Many buyers mistakenly believe they are golden once the lender issues their loan commitment. This is NOT the case!
Lenders can revoke a mortgage commitment and will do so if they see fit. Not too long ago, a buyer purchased a home I listed in Millbury, Mass. The buyer had been selling and buying a house simultaneously. They closed on their existing home but didn’t make their last mortgage payment.
Unfortunately, this was flagged on their credit report and prevented the buyer from getting the loan for their new purchase.
They had to apply at a new bank under a different program (FHA instead of conventional). This caused their purchase to be delayed, and they lost thousands of dollars in the process.
2. Be Careful Before You Consolidate Your Debt.
Debt consolidation can be tempting when you finally start looking at buying a home. Most consolidation offers to allow you to bring all your debt under one umbrella payment, which makes sense for some people.
But there are also often hidden fees and interest rates that can increase dramatically without warning. Consolidation may not improve your credit as you expect, so be sure to read all the fine print.
3. Avoid Changing Jobs.
You should not change jobs in the middle of purchasing a home! One of the things lenders look closely at is your employment history. They want to be sure that you are financially stable and capable of making your loan payments.
Changing a job before you get your loan makes you less appealing to the lender. Changing situations may cause the lender to think you are unstable or you won’t have a steady income to keep up with the mortgage. The word stability is something lenders love.
Keep your move under wraps until after the closing takes place.
4. Don’t Shift Your Finances Around Before Getting The loan.
4. Don’t Shift Your Finances Around Before Getting The loan.When a lender pre-approves you, the mortgage approval is based on the current state of your finances.
You want to maintain that state – the one that got you the pre-approval – at all costs. Sometimes buyers make the mistake of shifting their money around to position themselves better, but this is a mistake.
Wait to make any financial changes until after you have gotten your mortgage.
If a lender sees you moving money around various accounts, they will ask for an explanation.
You will need to give them a detailed accounting of why you moved your money around. Avoid making this mistake and keep your money in one place before closing.
5. Don’t Start Banking at a New Lending Institution.
Your bank may have made you angry or upset. Or maybe you saw a great offer from a competing bank that you can’t pass up. You must pass it up because changing banks before getting your loan can disrupt everything.
Just like the job and the finances, your banking history and status are part of the equation that leads to you getting pre-approved. Change your bank, and you may not get final approval.
6. Avoid Buying a Car.
Without a doubt buying a car while also purchasing a home is a common mistake. Doing so is also at the top of the list of what you shouldn’t do before buying a home.
Sometimes the feeling of knowing you are finally going to get a home of your own can be so exciting that you start looking at other ways to improve your life – like buying a car.
Unfortunately, purchasing a car can throw a wrench into your home-buying plans. Your loan pre-approval was based on the state of your credit and your debt load at the time of pre-approval before you bought a car.
Adding the debt that the car purchase will bring may make you unable to get a loan for your home.
If your debt to income (DTI) exceeds a certain threshold, typically around 43%, you become a high-risk borrower.
Avoid making significant purchases or financing an automobile for six months or even up to one year before purchasing a home.
7. Don’t Buy Furniture or Household Goods on Credit.
Another mistake many home buyers make is using credit to prepare for their new living arrangements. You may want to buy furniture and appliances to fill up your new home and make it yours, but hold back.
Taking on new debt, even for furniture or other household-related items, will change the state of your credit and may throw up a flag for the lender that leads to the loss of your loan approval.
Utilizing a significant amount of credit before closing a housing loan can be disastrous. Don’t max out your cards!
Additional debt will offset your income and lower your potential for mortgage financing. It’s possible it could also drop your credit score, leading to a higher interest rate.
In a worst-case scenario, your credit score could drop lower than the credit score needed to buy a home.
What’s most vital to understand is the lender is concerned with how much credit you’ve taken compared to your credit limits. High utilization can easily lead to lower credit scores.
To get the best mortgage rates, you should strive to keep your utilization below 30 percent of your credit limit.
8. Avoid Making Large or Cash deposits Into Your Bank Account
Money that appears suddenly in your bank account makes lenders uneasy. They prefer you to have the money going to your down payment in the same account for at least two months.
Lenders refer to the two months as “seasoning” and consider it a demonstration of stability and your ability to cover the loan payments.
Whenever you make a significant deposit or start doing unusual or unexpected things with your finances before the home purchase, the lender may begin to scrutinize the loan and might back out.
The bank could think it’s fishy to see large deposits moving in and out of your account, especially if that hasn’t happened before. Doing as little as possible to make a lender scrutinize your finances.
9. Avoid Lying or Stretching The Truth on Your Loan Inquiry.
9. Avoid Lying or Stretching The Truth on Your Loan Inquiry.You may not intend to lie about your finances when you fill out a loan application, but the point needs to be stated regardless.
Lying on a loan application is fraud. If the lender finds out you’ve misled them, you will almost certainly lose your loan.
Even stretching the truth or making an inaccurate honest mistake can cause significant problems if the truth is discovered.
So be very careful that all the information you put down is entirely accurate. Falsifying knowledge is a definite no-no when applying for a mortgage.
This a significant home-buying mistake that can put you in a horrible spot.
10. Don’t Let Anyone Make Inquiries About Your Credit.
Any time you apply for a credit card, a loan, or even try to sign up for a new service, like a cell phone service, the company you work with will probably make a credit inquiry.
They do this to determine if you are a safe risk, much like the mortgage lender.
But when the mortgage company sees inquiries being made, it may assume you are trying to take out more debt – even if you aren’t.
While one or two queries may not be enough to lose your home loan, there is no reason to take unnecessary risks when you are so close to getting your home.
One mortgage myth worth knowing – having your credit checked by multiple lenders when buying a home does not affect your credit score much.
From MyFICO – “FICO scores are more predictive when they treat loans that commonly involve rate-shopping, such as a mortgage, auto, and student loans, differently.
FICO Scores ignore inquiries made in the 30 days before scoring for these types of loans. So, if you find a loan within 30 days, the inquiries won’t affect your scores while you’re rate shopping.”
11. Don’t Spend The Money You Will Use to Cover Closing Costs.
For many home buyers, the period surrounding the home purchase is financial scarcity. Money may be tight right now, making the money you saved to cover closing costs tempting. But avoid spending it.
The last thing you want is to be unable to cover closing costs when you are at the point where you almost have your new home. Stay strong and avoid spending it if you can help it.
12. Don’t Overextend Yourself.
12. Don’t Overextend Yourself.Many lenders will gladly give you what they think you can afford on paper when buying a home.
However, what you qualify for on paper doesn’t necessarily mean what you’ll be comfortable living daily.
Some buyers make the mistake of really overextending themselves. They end up becoming a slave to their home.
If going out to a nice dinner from time to time is something you have been accustomed to, be more conservative with your house purchase.
13. Avoid Being a Co-Signer For Anyone.
When you co-sign a loan, you are obligating yourself financially. It does not matter that you are not the primary person on the loan.
You’ll be stuck paying the debt if the lender needs money and cannot get it anywhere else.
Home lenders are well aware of this fact and therefore disapprove of any applicant who decides to co-sign.
As with all the other points listed above, you must keep your credit and financial situation stable and constant until you have closed on the house.
No matter how badly you may want to help out a friend or family member, try to postpone co-signing until you have the money for your home purchase.
14. Don’t Spend More Than The Value of The Home.
There are times when real estate markets become extremely hot! In real estate jargon, we call this a “seller’s market.”
Most of the country has been experiencing these conditions over the last few years. In many places, buyers have been put in a position where winning bidding wars is the norm, not the exception.
You’re more likely to see fancy ways to beat the next guy to the punch, like an escalation clause in an offer. When you are in an environment such as this, it is easy to overspend as a buyer.
After all, if you have lost out on a few homes, you’re more than likely going to reach to get a house you love.
When involved with multiple offers, it is not uncommon for the sale price to be pushed significantly above asking. While the buyer may be willing to do this, a lender may not.
When the home doesn’t appraise, the borrower may be stuck putting up more money or risk losing the house. You can’t assume the seller will be cooperative and drop their price. With an appraisal gap, you could be rejected for the loan if you can’t make up the difference.
Don't overpay when buying a house!Click To TweetDon’t Assume You Need a 20 Percent Down Payment
One of the greatest misconceptions in real estate is that you need to have a sizeable down payment. While a twenty percent down is nice to avoid paying private mortgage insurance, it is unnecessary.
Many first-time buyer programs allow a significantly lower down payment. The average down payment for a first-time home buyer is around six percent.
Make sure you shop with multiple lenders to get the best mortgage terms.
Final Recap on What Not to Do Before Buying a House
As you can see, making mistakes when getting a mortgage can be easy, especially when you are a first-time home buyer.
Hopefully, you have found this information helpful and won’t make one of these financial blunders.
Additional Helpful Mortgage and Home Buying Resources
- How to improve your credit score before buying a home – if you can, boosting your credit score will be a worthwhile exercise. See what it takes via Luke Skar.
- Why a condo may be a great purchase – could buying a condominium make the most sense for you? Find out via Sharon Paxson.
- Critical things to ask when buying a condo – learn the questions that should be asked when condo shopping via Conor MacEvilly.
- Buying a home as a single parent – see what to know about purchasing a house when you’re not married via Kyle Hiscock.
Use these incredible home-buying resources to make intelligent decisions when purchasing a home, especially for the first time.
About the Author: The above Real Estate information on what not to do before buying a house was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at billgassett@remaxexec.com or by phone at 508-625-0191. Bill has helped people move in and out of many Metrowest towns for the last 37+ Years.
Are you thinking of selling your home? I am passionate about real estate and love sharing my marketing expertise!
I service Real Estate sales in the following Metrowest MA towns: Ashland, Bellingham, Douglas, Framingham, Franklin, Grafton, Holliston, Hopkinton, Hopedale, Medway, Mendon, Milford, Millbury, Millville, Northborough, Northbridge, Shrewsbury, Southborough, Sutton, Wayland, Westborough, Whitinsville, Worcester, Upton and Uxbridge MA.
